The federal government wants to increase the number of financial advisers in Australia so more households can afford quality financial advice and don’t have to rely on advice from ‘finfluencers’ and unregulated sources online.
The government says 10,000 financial advisers have left the industry since 2019, in the wake of the Hayne royal commission, and it has left a vacuum of quality information for people.
It says there are only 16,000 financial advisers left in the country, and the median cost of financial advice has increased by 41 per cent between 2018 and 2021 as a result, leaving quality advice too expensive for too many households.
To deal with the problem, it says it wants to significantly increase the number of financial advisers in Australia and make it easier for superannuation funds to provide advice to their millions of members who are approaching retirement.
It also hopes to encourage financial advisers with at least 10 years’ experience — and a clean regulatory record — to stay in the industry by allowing them to keep practising if they don’t have a tertiary qualification.
It’s part of the government’s response to the Quality of Advice Review, the final report of which was released in February.
The government says it has accepted 14 of the review’s 22 recommendations “in full or in-principle”, and it will develop legislation over the coming year to deal with them.
It will also introduce legislation to parliament this week aimed at keeping experienced financial advisers in the industry.
The plan to rebuild the financial advice industry
Stephen Jones, assistant treasurer and minister for financial services, outlined the government’s plans on Tuesday.
He said the government would tackle the problem in three phases.
In the first phase, it will try to streamline the process of giving financial advice through the channels that already exist.
That will involve replacing unwieldy statements-of-advice with something more fit-for-purpose, scrapping the legalistic “safe harbour” checklist that advisers have to follow to comply with the best interests duty, and improving transparency about the commissions advisers are being paid for certain products.
It will coincide with the government’s attempt to encourage experienced financial advisers to stay in the industry.
“This week, I will be introducing legislation to parliament to follow through on the government’s election commitment to create a pathway for experienced advisers with a clean record to continue practising without the need to undertake further education,” he said in a speech to the Association of Superannuation Funds of Australia on Tuesday.
The second phase of the plan will involve retirement incomes.
Mr Jones says Australians are now retiring with about $200,000 on average in superannuation, but only 26 per cent of individuals approaching retirement are seeking financial advice.
By 2060, it’s projected that one in every three dollars paid out of the super system will be a bequest – that’s money being passed to family members.
Mr Jones says the purpose of superannuation is not to leave bequests. An effective retirement system should see Australians drawing down on their super in ways that improve their quality of life in older age.
He says the Retirement Income Covenant, which came into effect in July last year, requires super trustees to develop a retirement income strategy for their members that helps members manage spending of savings through retirement.
But, he says, the current rules constrain super funds from having the exact conversations needed with their members to help them develop those successful retirement income strategies.
“Superannuation funds have told me that they have many retirees who have not switched from the accumulation phase to a tax-free pension account,” Mr Jones said on Tuesday.
“This might be good for the Treasury coffers, but it’s not good for members.
“I’m also told that there are thousands who miss out on the Age Pension and other benefits that they are entitled to, simply because they didn’t know who to ask. Or because they assumed their super fund was already doing this for them.
“As such, we will adopt the review’s recommendation for superannuation funds to expand their provision of advice.
“We will also provide legal certainty for funds on how to collectively charge for advice.
“Super funds are well suited to safely meeting the needs of their members. They are already governed by strong obligations to act in the best financial interests of members and act for the sole purpose of providing retirement benefits to members,” he said.
The third phase of the government’s plan will examine the role of other institutions – such as banks and insurers – in providing more information and financial advice.
Mr Jones says as Treasury officials work on implementing the recommendation to allow super funds to provide more financial advice, they will explore with industry what would be required to tailor the model for other institutions.
However, he says, the first two stages of the plan are far more urgent, so the third stage will take a back seat in the government’s immediate reforms.
“In terms of priority, I believe it is more urgent that we fix the problems for financial advisers and help the five million Australians, at or approaching retirement, get access to more retirement income advice,” Mr Jones said on Tuesday.
“I’m just not compelled that the same urgency exists in these other spaces.
“There is also a difference between the obligations that cover these institutions and superannuation funds.”
Unregulated advice is filling the information vacuum
Mr Jones said the lack of affordable quality financial advice for Australian households could lead to “significant consumer harm” as people turned to the unregulated world for information.
“It can lead to even more harm when they try seeking to fill this advice gap with information from the unregulated world,” he said on Tuesday.
“And I don’t just mean Uncle Bob at the BBQ. But ‘finfluencers’. Unlicensed online advice. And scammers.
“Getting more professional advisers, qualified and into the practice is important. It needs to happen.”
The Council on the Ageing (COTA) said it looked forward to seeing the detail of the government’s legislation because reforms to help people approaching retirement to get good retirement income advice are long overdue.
But Patricia Sparrow, COTA’s chief executive, said while the changes announced by Mr Jones were positive, she didn’t want them to lead to a situation where super fund members would be charged fees for no service.
The Council of Australian Life Insurers (CALI), which was formed last year, also tentatively welcomed the announcement.
It said it supported the government’s plan to allow super trustees to provide advice to their members, including on life insurance.
But it said it would like the government to eventually allow life insurers to also provide limited advice to Australians when they asked for it.
“We must address the growing problem of underinsurance that is leaving people unprotected when times get tough,” CALI chief executive Christine Cupitt said.
“For many Australians, getting advice is too expensive or too inaccessible with just 16,000 financial advisers to turn to across the country. Of these advisers, there are just 1000 who are helping people navigate life insurance products, which makes reforms for life insurance advice an urgent priority,” she said.
The finer details of the government’s plan
The government says it will develop legislation over the coming year to help it implement the recommendations from the final report from the Quality of Advice review.
Here are some of the finer details of its planned changes, following the recommendations.
Phase 1: Removing regulatory red tape
- The ‘Safe Harbour’ steps will be removed from the Best Interest Duty with consultation to determine implementation details originally designed to protect financial advisers and the implications of adopting the remaining parts of recommendation five (accept in principle part of recommendation five).
- Ongoing fee renewal and consent requirements will be streamlined into a single form, and the requirement to provide a fee disclosure statement will be removed (accept recommendation eight).
- Statements of Advice will be replaced with an advice record that is more fit-for-purpose, with consultation to determine the final design of the replacement (accept in principle recommendation nine).
- Certain exemptions to the ban on conflicted remuneration will be simplified and some removed.
- Standardised consumer consent requirements will be introduced for life, general and consumer credit insurance commissions (accept recommendations 13.7–13.9).
Phase 2: Expand access to retirement income advice
- The restrictions on collective charging will be amended to allow superannuation funds to provide more retirement advice and information to their members (accept in principle recommendation six).
- Superannuation trustees will be provided with legal clarity around current practices for the payment of adviser service fees (accept in principle recommendation seven).
Phase 3: Exploring new channels for advice
The Government will explore expanding the provision of advice by other institutions by consulting industry and consumer stakeholders on recommendations to:
- broaden the definition of personal advice (recommendation one)
- remove the general advice warning (recommendation two)
- allow non-relevant providers to provide personal advice (recommendation three)
- introduce a good advice duty (recommendation four)
- amend the Design and Distribution Obligations (recommendations 12.1 and 12.2).
This consultation will finalise implementation details for:
- the design of the replacement for Statements of Advice
- the implementation details and the implications of adopting the remaining parts of recommendation five
- the Financial Adviser Code of Ethics
- expanding access to affordable retirement advice.
Government consultation will test how these proposals might operate under different advice models, including digital advice models, and across sectors. Consultation will also consider practical policy design and implementation issues, including in relation to consumer protections.
The government will issue its final response on the Delivering Better Financial Outcomes package later in 2023.
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The changes to the Financial planning are step backwards. A few years ago the industry was forced to make the right changes and practitioners had to be accredited and maintaining their accreditation by passing exams each year. This has driven a lot people out of the industry because they weren’t prepared to pass the annual exams or only had a narrow niche within them mainly pushing insurance policies and pushing super funds that gave them the best commissions. A lot of the funds will only push their own products. This new legislation is giving the big funds the keys to the money drawer of the nations superannuation funds.