Goals of advice reform ‘lost in translation’ with DBFO 1.5: TAA

The Advisers Association (TAA) has joined the critics of the government’s last-ditch effort to get the details of its financial advice reforms into the public eye, saying that while it “welcomes progress on this draft legislation”, its members are concerned about the direction things have taken.

In its submission to Treasury on the draft bill, TAA pointed to the inclusion of retirement products in collectively charged intra-fund advice, the “nudge” regime, and the “practical impacts” of the statement of advice replacement as among its concerns.

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“More important changes, such as recognising professional judgement and revising the best interests duty, are needed for substantial improvements in access to affordable, scalable, quality advice and reducing costs in the financial advice sector,” the submission said.

“Our overall assessment based on member feedback of the proposed changes is that they are unlikely to materially simplify the law, reduce red tape, or deliver efficiencies by reducing the time it takes for financial advisers to provide advice.

“It is therefore unlikely to achieve the main objectives of significantly improving access to affordable and quality financial advice or reducing the cost of providing advice.”

While the association said it understood the “logic of a phased approach”, the draft bill simply didn’t address what it sees as the “major impediments to providing advice cost effectively and in a more consumer-focused way”.

Looking specifically at the expansion of what super fund trustees can provide through collective charging, TAA said the current law was clear and there was no need to go beyond the changes within the final Quality of Advice Review report.

“Instead this draft legislation grants additional regulation-making powers to cover advice topics and circumstances to be taken into account, publishes a consultation note listing products that will and won’t constitute intra-fund advice, and lists circumstances that can be taken into account when providing the advice,” it said.

“Michelle Levy’s, and the government’s intent, is to move to a more principles-based approach, with less prescriptive legislation and regulation, so it appears that has been lost in translation, with the draft legislation.

“Concerningly, the list of acceptable products now explicitly includes retirement products. We have debated if any retirement advice could be deemed simple, and have landed on a strong view that retirement advice is complex, as the advice can have long-term impacts on the individual’s future circumstances and if the advice is not appropriate, it is very difficult, if not impossible, to fix it in the future.

“Retirement advice should therefore be the subject of personal advice and not be collectively charged for.”

Intra-fund advice, TAA continued, should be restricted to simple product information only, adding that the costs of providing intra-fund advice should return to its previous position as separately disclosed to increase transparency of the “costs that members are ultimately paying for”.

“The proposed explicit addition of retirement advice for collective charging, combined with changing demographics, means that many younger fund members will be paying for older members to receive complex advice for free, and our members’ clients are effectively being charged twice, i.e. in addition to the fees they pay directly for personal advice they are also paying for other people to receive advice for ‘free’,” TAA said.

“One solution to address this would be to allow members to opt out of collective charging and have a reduction in their product fees.”

TAA noted that, in line with its previous submissions on advice reform, there should be a “less prescriptive approach to the advice documents and a greater reliance on professional judgement”, adding that this is what Levy recommended.

“We were hoping for better recognition of professional judgement, less prescriptive requirements, changes to Standard 6, etc, as a package that could be quickly and efficiently implemented,” it said.

“We are concerned with the interplay between the prescriptive list of requirements to be included in a CAR, the client’s desire to have more personalised and scoped advice relevant to their particular situation, which would result in a better client experience and advice documentation aligned with the complexity of the advice and the client’s needs and level of knowledge.”