On 7 December 2023, the Minister for Financial Services, the Hon. Stephen Jones unveiled the next phase of the QAR reforms which is intended to improve the accessibility and affordability of quality financial advice. The Government intends to introduce a new class of financial adviser, a modernised and flexible best interests duty, expand superannuation advice and replace the statement of advice (SOA) with a principles-based advice record.
The Government plans to explore a new advice channel by implementing recommendation 3 of the QAR which will allow non-relevant providers to provide personal advice. A new class of adviser will be created to increase the availability and affordability of simple personal advice and they are expected to be termed “qualified financial adviser.” To operate in this space several caveats are proposed to operate. These include no ability to charge a fee or receive a commission relating to the personal advice they provide, being subject to a modernised best interests duty, minimum competency standards and licensees being wholly responsible for the advice provided.
A modernised and flexible best interests duty will apply to all providers of advice, even the new category of adviser, under the Government’s proposed model. The existing obligation to act in the best interests of the client and to prioritise the interests of the client will remain however the standard will be updated to provide clearer support for scaled or limited scope advice. The safe harbour steps will be removed from the best interest duty. As a mechanism to ensure all advice provided is appropriate to the client and fit for purpose, the Government has stated that the requirement to provide appropriate advice will be retained.
In response to recommendation 6 of the QAR, the Government has announced they intend to introduce a comprehensive framework for superannuation advice, legislating consistent rules on what advice topics can be paid for via superannuation, collectively charged advice, and advice that is charged direct to the individual member’s superannuation account. Superannuation funds will be able to consider a broader range of a member’s personal and household circumstances and can support increased member engagement at key decision points in the retirement income journey. To allow for this, the Government plans to provide superannuation funds with legal certainty to provide members with personalised ‘nudges’, at pivotal moments in their life.
The advice documentation will also be reformed under these proposals. The Government has announced a principles-based advice record will replace the existing statement of advice. The Government asserts that the new advice record will be a fit-for-purpose, principles-based, advice record that addresses four principles – subject matter or scope, the advice, the reasons for the advice and the cost of the client and/or benefits received by the adviser. While recommendation 9 of the QAR provided flexibility around the provision of the document in line with the client’s preferences, the Government has confirmed the requirement to give the record to the client will be maintained. To operationalise this recommendation, adviser record-keeping obligations will be updated so key information that informs the advice is appropriately recorded. The Government will also undertake a review of the Code of Ethics to ensure it aligns with the proposals and remains fit for purpose.
It’s important to draw attention to the recommendations the Government has stated they will not move forward with. While industry had called for the package of reforms put forward by Michelle Levy in the QAR be implemented as a whole package, the Government has ruled out implementing recommendations 1, 2, 12.1 and 12.2. Recommendation 1 sought to broaden the definition of personal advice to capture more circumstances. Recommendation 2 called for general advice to continue to be a financial service, but the requirement for a general advice warning to accompany general advice was to be removed, 12.1 DDO – reporting requirements and 12.2 DDO – distribution requirements are also not being implemented.
The release of the final Government response to the QAR is the final step in the consultation process. The Government has stated legislation will be developed through 2024 to implement the proposed model. While industry will no doubt take some comfort in knowing the Government’s intentions regarding the reforms, legislation enacting these changes will need to transition through the normal law-making process. Just what amendments, if any, may result from that process are anybody’s guess.
If you have any questions on this reform package, please contact the BT Technical Services team on 1800 655 901 or email technical@btfinancialgroup.com.
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