How to ensure Australians have access to quality, accessible and affordable financial advice
The lack of affordable quality financial advice has the potential to harm the financial future of Australians as people look to unregulated sources for help.
Partner Allens & Author Quality of Advice Review
Types of financial advice
When people seek financial advice, there are two types of advice to consider. Both can help achieve their financial goals, but they come with very different rules and regulations.
- General advice is general in nature and doesn’t consider personal circumstances. While it can help identify and narrow down an advice pathway, it won’t provide guidance on what’s the best financial decision for an individual’s unique situation.
- Personal advice is tailored to an individual’s personal situation. It’s more specific and looks at someone’s financial situation and goals.
Shaking up the advice industry, for the better
There have been many attempts to improve the quality of financial advice for Australian investors. First came the Future of Financial Advice (FOFA) in 2012, then we had a Royal Commission in 2017, and most recently we’ve seen Michelle Levy lead the independent Quality of Advice Review that was undertaken to simplify the complexity of the financial advice process in order to deliver affordable and good advice to all Australians.
In response to the Quality of Advice Review, as an extension to the 13 key recommendations made, Assistant Treasurer and Minister for Financial Services, Stephen Jones has asserted that he wants to significantly increase the number of financial advisers in Australia and make it easier for super funds to provide advice to the millions of members approaching retirement. The targeted outcome is for more households to be able to afford quality financial advice and avoid reliance on an individual’s unqualified opinions or through use of unregulated online sources.
This will be achieved in three stages
At its most basic level, stage 1 will repeal laws that were intended to protect those who are seeking financial advice, that instead got in the way of an adviser’s ability to provide good advice.
- Replace unwieldy statements of advice with something more fit-for-purpose.
- Scrap the "safe harbour" checklist that advisers must use to comply with the best interests duty, and replace with a revised approach focussed on a “Good Advice” duty.
- Improve transparency around commissions.
According to the Assistant Treasurer and Minister for Financial Services, Stephen Jones, only 26% of individuals approaching retirement are seeking financial advice. This is woefully inadequate.
The Government envisages an effective retirement system as one that sees Australians using their super to improve their quality of life in older age. They introduced the Retirement Income Covenant that was effective July 1, 2022 - which required super trustees to develop a retirement income strategy that helps members manage spending through retirement.
The current regulations constrain super funds from having the personal conversations that are genuinely needed to help members develop those successful retirement income strategies. Therefore, the review proposes to expand the ability of super funds to provide advice, and also provide legal certainty on how they can charge for this advice.
A step forward…or déjà vu?
Some critics have been quick to suggest these changes will take us back to the world of advice we had before the Royal Commission, where banks and insurers were free to provide advice as they liked.
But Michelle Levy was quick to highlight that the recommendations make it very clear that if the person providing advice isn’t a financial adviser, who’s a professional with fiduciary obligations, then it’s the institution that’s providing the advice.
Let’s look at an example.
In the case of a super fund, it's the Trustee that must ensure its staff or digital platform can provide good advice.
With digital platforms, the advantage is that you’ve got a reliable record of what’s been said and done. So, it’s easy to check the advice that’s been given.
In either case, if something goes wrong and the advice isn’t good, it’s the institution that’s standing behind that advice, not the individual.
The role of the traditional adviser or wealth manager
Are these changes a threat or an opportunity for the advice industry overall?
Investors look to their advisers and wealth managers to help them build well-diversified portfolios, source and access high-quality asset managers and strategies, invest sustainably, monitor risks and manage overall investment costs.
By removing some of the pain points and red tape for advisers and wealth managers, both will potentially have more time to build stronger and more valuable relationships with clients, driven by trust and confidence. We’re seeking a world where Advisers are respected for their professionalism and are free to operate in an environment where they can genuinely demonstrate how their skills are benefiting potential and existing clients.
Partner Allens & Author Quality of Advice Review
A new world of financial advice
Making financial advice more affordable and accessible means revisiting what constitutes good advice. For Australian households, good advice should allow access to a whole diversity of financial advice whenever they need it.
Partner Allens & Author Quality of Advice Review
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