Quality of Advice: what’s next?

The financial advice reform process initiated via the Quality of Advice Review continues to move forward. The Australian Government responded to the review through its Delivering Better Financial Outcomes (DFBO) package, setting out how changes to advice regulation would be implemented.

Recommendations introduced to Parliament 

The response package was announced in two parts. The first part focused on removing regulatory red tape adding to the cost of financial advice without benefiting consumers. This included clarifying the legality of superannuation trustees deducting financial advice fees from an individual’s account, and standardising customer consent processes for life insurance commissions. Legislation to implement these changes was introduced into the House of Representatives on 27 March, and should make its way through Parliament by the end of 2024.

A second announcement dealt with deeper, system-level reforms intended to fundamentally change how consumers access and experience financial advice. In this announcement, the Australian Government backed product issuers such as superannuation funds and life insurers to play a larger role in personal financial advice provision through a new class of financial adviser, provisionally termed a “qualified adviser”. 

Advice in practice

Details of how a qualified adviser would provide advice are still being worked out, but, conceptually, a qualified adviser would provide limited personal advice relating to products and services provided by the employing product issuer. For example, an adviser employed by a superannuation fund would be able to use personal information provided by a member to recommend a retirement income product offered by the fund, without needing to compare the product to alternatives offered by other funds. The adviser would also be able to consider the member’s wider financial circumstances such as age pension eligibility, spouse income and any debt they hold. However, the adviser would not be permitted to provide broader strategic advice, or to advise on products not offered by the fund. Members needing this type of more comprehensive advice would need to be referred to an independent financial adviser offering this type of advice – much as they would be today.

An important part of the decision is to streamline the regulations governing how advice is documented for members. The intent is for records of advice provided to members to contain only the most essential information, such as the subject and scope of the advice, the benefits of the advice for the member, and the cost to implement it.  This will be much more useful for members than the long, compliance-driven statements of advice currently provided. 

Next steps 

Working out how to translate these and other announced reforms into specific legislative changes is the current focus of the DFBO project, which is being coordinated by Treasury with the input of financial services firms and industry associations. We hope to see a bill delivering on the reforms before Parliament in mid to late 2024, for passage in 2025.