Banks to be able to offer new form of advice

The Albanese government has unveiled its Delivering Better Financial Outcomes package, a package of changes that will continue the government’s reform of financial advice.

The package aims to:

• Introduce a new class of financial advice provider to support an increase in the availability and affordability of simple personal advice.
• Replace statements of advice with a “more fit-for-purpose, principles-based, advice record”, written in plain English.
• Introduce a “modernised and flexible best interests duty”, which will apply to all providers of advice to ensure the provision of high-quality advice that meets consumers’ needs.
• Introduce a “comprehensive framework” for superannuation advice.

Per the Quality of Advice Review’s recommendations, this new breed of advisers will only be able to provide ‘simple financial advice’ and won’t be permitted to levy fees or collect commissions linked to the personal advice they offer. They will be required to meet a government-mandated education standard (yet to be determined). It is expected that there may be a minimum standard of a diploma.

However, they’ll be mandated to meet extra criteria beyond the review’s suggestions. This encompasses adhering to an updated best interests duty, ensuring that all personal advice maintains a consistent standard of quality.

These changes will apply across all financial institutions, including superannuation funds, life and general insurers, and banks. It is expected that this new class – to be termed ‘qualified advisers’ – will generally be employees of licensed financial institutions. The licensee will be wholly responsible for the advice provided.

To fortify consumer protections for these new advisers, additional “guardrails” will be implemented. This includes heightened obligations for Australian Financial Services licensees and legislated minimum competency standards for the advisers themselves.

The existing best interests duty “safe harbour” steps will be removed, but the requirement to provide appropriate advice will be retained. The requirement for advisers to give priority to their client’s interests where there may be a conflict will also be retained.

It is expected that this will ensure that “all advice is appropriate to the client and fit for purpose for their circumstances”.

The updated standard will provide clearer legislative support for scaled or limited scope advice where this meets the client’s objectives and needs and for advice where the advice provider has limited, but relevant, information.

The government will also allow superannuation funds to consider a broader range of a member’s personal and household circumstances such as debt, spouse’s income, or age pension eligibility and will give superannuation funds “legal certainty to provide members with personalised ‘nudges’, such as prompting members approaching retirement to consider options for how they may wish to draw down on their super”.

Legislation will be developed to implement this model in 2024.

‘Better advice, better financial outcomes’

Announcing the changes on Thursday (7 December), the Assistant Treasurer and Minister for Financial Services Stephen Jones said that the package aimed to help more Australians access affordable financial advice.

He highlighted that over 5 million Australians are at, or approaching retirement, but “many people simply can’t access affordable advice”.

“It is a failure of the system that quality, simple personal advice is almost impossible to get. And comprehensive advice is out of reach for most,” he said.

“The government promised to make financial advice easier to access when Australians need it and [this] announcement delivers on that commitment.

“With 5 million Aussies at or approaching retirement with more money than ever before, these reforms will help people make informed and safe financial decisions.

“This new access to financial advice will reduce the harm caused by scammers posing as ‘fin‑fluencers’, with investment scams representing over 60 per cent of all scam losses so far this year.

“Access to good advice can be key to helping Australians manage cost-of-living pressures.”

According to the government, the “vacuum” created by a lower number of financial advisers has been filled by ‘fin‑fluencers’ on TikTok, Reddit, and other social media platforms, which was exposing consumers to unregulated advice and, potentially, scammers.

The government package therefore aims to reduce unnecessary red tape that doesn’t add a consumer benefit and makes professional financial advice costly.

Speaking at Parliament House in Canberra, Mr Jones said: “We are not going to reverse course and return to the bad days.

“If the goal has been to protect Australians from bad advice, we have been pretty successful.

“But in the process of protecting Australians from bad advice, we have also protected them from good advice.”

In a statement issued hours after the revelation, the Coalition slammed the government for leaving the financial planning industry with “unanswered questions and lack of regulatory certainty”.

“The government was handed a considered and timely review by Ms Michelle Levy that would have provided safer, simpler, and cheaper financial advice to all Australians. This would have had positive benefits to the economy as well as to consumers,” shadow treasurer Angus Taylor said.

“Instead, the government has delayed, second guessed the reviewer, and after failing to deliver a response in the budget, finally delivered a full response to what should be a seminal productivity roadmap for our financial advice sector.

“This is both disappointing and unsurprising,” Mr Taylor noted.

Similarly, the Finance Brokers Association of Australia (FBAA) said it was alarmed by the government's plan to create a new category of financial advisers within institutions, fearing a conflict of interest and inadequate consumer protection. It has urged the minister to address education standards and accountability for individual advisers to prevent potential harm to consumers' financial well-being.

The CEO of the Financial Advice Association (FAAA) has also voiced scepticism, stating: “There is little detail available at this stage, but on the face of it we are deeply concerned at the direction of these announcements...

“Our members fear this could be winding the clock back five years on our profession,” Ms Abood continued.

She said that the government’s response, particularly regarding the creation of a new class of financial advice providers, “appears to invalidate the hard work and pain that has been involved in creating financial advice as a profession”.

[Related: Credit advice ‘pretty much sorted’: Assistant Treasurer]