When Financial Services Minister Stephen Jones announced in December 2023 that the government supports the introduction of a new class of financial advice providers, it was a shock indication that banks and insurers were also being let back into the advice space.
As recommended by the Quality of Advice Review (QAR) – recommendation 3 – this new class of advisers will not be able to charge a fee or receive a commission relating to the personal advice they provide.
“We must give consumers what they actually need,” the minister said at the time.
“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,” he clarified.
This move signalled something of a U-turn for the government, as the minister had previously expressed a lack of urgency to grant similar privileges to banks as he had earlier announced for super funds.
“There is also a difference between the obligations that cover these institutions and superannuation funds,” he said in June last year, adding that super funds are “already governed by strong obligations to act in the best financial interests of members”.
And then again in October, in an exclusive interview with ifa, Mr Jones said that banks aren’t an obvious provider of advice, especially advice that concerns retirement.
“I think the banks have exited a whole heap of the advice space for a good reason and they’ve made commercial decisions based on their own risk appetites and where they want to take their businesses,” Mr Jones said at the time.
“They may want to review some of that down the track, but that will be a matter for them. I am not here to try and work out what’s in a bank’s commercial interest.”
However, while the proposals have been altered to accommodate banks and insurers, that doesn’t mean the institutions will immediately jump on the opportunity.
Speaking at an event held by PritchittBland Communications last week, and just days before the five-year anniversary of the royal commission’s final report release, Sarah Abood, chief executive of the Financial Advice Association Australia (FAAA), said that while super funds have been working on their return for a long time and “already have their plans well developed”, that doesn’t ring true for all institutions.
“I think when it comes to the banks, and the life insurers, there’s less immediacy for them. And particularly for the banks,” Ms Abood said.
“I think they may feel that they’ve been burned on advice, and then they require a fair bit of certainty to entice them back into the advice space. We may see that take a little longer.”
She added that the reputational damage related to advice that some of the large banks suffered throughout the royal commission is compounding this need for certainty before they start to move.
“You’ve got to have a reason as well. So, if you’re not selling retail financial products, then you wouldn’t have a need to do it,” Ms Abood said.
“It would be part of, I think, a much bigger wealth strategy for banks. Life insurers, I think, are probably more proximate and they have a need to support existing clients who may no longer have an adviser, for example. So, my guess is they will move more quickly than the banks.”
The only major bank to directly address their re-entry to advice is NAB, with NAB CEO Ross McEwan telling the House standing committee on economics in July that the change in legislation would have to be “dramatic” to “convince” the bank to “go back into that market”.
“I have no plans to do so at this point in time,” Mr McEwan said.
He explained that it would have to be done in “quite a different way” that allows for affordable advice that is good for customers and that NAB itself could afford.
“We’re out of that space,” Mr McEwan said. “It would have to be quite a change in legislation to twist my arm to go back into it.”
However, in a statement provided to ifa after Mr Jones’ December announcement, a spokesperson for the bank hinted that NAB would be assessing its position in due course.
“NAB is still working through the details of the government’s financial advice reform package,” the spokesperson said at the time.
According to Ben Marshan, the principal at Ben Marshan Consulting and former general manager of policy and advocacy at the Financial Planning Association of Australia (FPA), the legislation may not be in place before the next federal election.
“I’m not a betting man, but if I were to put money on it, I would say we’re looking at July 2025, maybe, and it could be 12 months from there before a lot of this is live,” Mr Marshan said on the Challenge the Standard in Financial Advice podcast.
The prolonged pre-reform process and the big four’s reluctance to address the QAR, coupled with banks’ insistence on certainty, suggest that the adoption of “qualified adviser” advice is unlikely in the near term.
They wont come back unless they are able to provide conflicted and inappropriate advice by recommending their own funds like industry super funds do.