The government’s second tranche of the Delivering Better Financial Outcomes package has been broadly welcomed by the industry, although they maintain further specifics are needed given “the devil’s in the details”.
In a statement on 3 December, Financial Services Minister Stephen Jones announced a slew of reforms for the advice profession, outlining rules around the new class of adviser and simplification of documentation.
The statement came just under a year after the Tranche 2 reforms were first announced on 7 December 2023.
The Financial Advice Association Australia (FAAA) said it remains “cautiously positive” with the latest announcement.
“We think that these reforms will go some way to getting more financial advice to more people,” said FAAA CEO, Sarah Abood. “We are looking forward to seeing further detail on how these reforms will work, beyond the high level provided in this announcement.
“Nevertheless, it is good to see the government’s announcement addresses a number of the concerns that the FAAA has identified during earlier consultation.”
She highlighted the FAAA is happy to see key reforms like greater certainty on the provision of scoped advice, removal of the best interest duty safe harbour steps, and simplification of advice documents.
Blake Briggs, chief executive of the Financial Services Council (FSC), noted Jones has committed to financial advice reforms that are “competitively neutral” to ensure all sectors in the industry “contribute to the common policy goal of delivering affordable and accessible financial advice to Australian consumers”.
“The government’s direction of travel is positive; however, with critical details yet to be confirmed, industry support is qualified. While the draft legislation has not yet been released, confirmation that the best interest duty will be modernised, the safe harbour steps abolished, and statements of advice will be reformed have broad industry support,” Briggs said.
With the cost of financial advice sitting at more than $5,000, he pointed to FSC modelling that suggests the reform will reduce the cost of providing advice by 40 per cent.
New class of adviser
A key feature of the reforms is details surrounding the new class of adviser (NCA) who will be restricted to providing advice on products issued by prudentially regulated entities, such as choosing an insurance policy or basic questions about retirement.
There was government recognition of a pathway that could lead the NCA to become qualified advisers, Abood said.
“It’s extremely important that the education for NCAs can count towards a full financial planning degree, and that the NCAs of today can become the professional financial advisers of the future,” she said.
“Since the banks and other institutions exited financial advice, those traditional training grounds have been lost. With our numbers having halved in the last five years, and only just over 300 new entrants last calendar year, we urgently need to replenish the ranks of professional advisers.”
Adviser numbers stood just above 15,500 as of 28 November, according to Wealth Data.
The FAAA also welcomed assurances that advice businesses and product issuers will be able to employ NCAs and charge a one-off or episode fees. Many FAAA members have previously voiced interest in being able to appoint these advisers in their businesses, Abood noted.
“We certainly believe that advice firms should have this option. This provides a more level playing field, enhances competition, and gives consumers more choice in how they access simple advice.
“Quite early in discussions, many members told us they also wanted to be able to appoint these advisers. This could offer a more affordable means of providing simple advice to the children or grandchildren of clients, for example. It is pleasing that the government has recognised this and plans to legislate accordingly,” Abood said.
“The scope of advice for NCAs will be limited to prudentially regulated products, such as insurance and superannuation. We are particularly keen to see how this will play out in relation to retirement advice, and how it will interact with the sole purpose test – we look forward to seeing more detail from the government on this.”
The FSC said the design of the proposed list of prohibited topics for NCAs, and ensuring they are limited to simple advice topics that distinguish them from professional financial advisers, remains a “critical detail” for further consultation, he said.
“The FSC has argued that a competitively neutral NCA framework will support an increased supply of advice for Australians, particularly by businesses with a specialisation and experience in providing independent financial advice to consumers,” Briggs explained.
“Allowing independent financial advice businesses to offer advice on simple topics through the new class of adviser and providing the flexibility to charge one-off fees for this advice, in addition to collective charging which some superannuation funds may adopt, supports competitive neutrality and choice for consumers,” Briggs added.
While broadly welcoming the reforms, SMSF Association chief executive, Peter Burgess, also pointed out it “remains a mystery” why the potential role of other professional advisers, like accountants, was overlooked in the second tranche.
“It was our contention that the Quality of Advice Review neglected the significant role accountants can play in addressing the growing advice gap, and the government is perpetuating this oversight,” Burgess said.
“By giving accountants a defined advice role, it will further support consumers to access the advice they need when they want it from their choice of trusted adviser.”
