Minister Jones has backed a two-tiered advice system and the introduction of a “qualified adviser” designation for banks, insurers, and super funds.
One of the most contentious recommendations made by the Quality of Advice Review (QAR) was the suggestion that banks should return to the advice landscape to plug the expanding advice gap.
But while the QAR didn't differentiate between super funds, banks, and insurers, and instead suggested that all institutions should be given expanded advisory powers, Financial Services Minister Stephen Jones disagreed.
For months now, Mr Jones did not appear to favour the return of the banks and advocated instead for the expansion of advisory services by superannuation funds.
Back in June, while detailing the government’s QAR response and its endorsement of Michelle Levy’s super-related recommendation, Mr Jones conveyed his lack of urgency to grant similar privileges to banks.
“There is also a difference between the obligations that cover these institutions and superannuation funds,” he said, 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.”
Instead, the minister emphasised his commitment to prioritising the best interests of consumers and said that in evaluating this, he found no compelling reason to reintegrate banks into the system.
“It’s not obvious to me the banks are the first port of call people planning their retirement are going to go to. Yes, they may have a role but I don’t think it’s a central role,” the minister added.
During the same interview, the minister hinted at having conducted discussions with banks and insurers, and reiterated that super funds would have the initial priority.
“There’s no doubt if you’re able to crack it in super funds we can create some models which might be applicable," he told ifa at the time.
"I’ve also been pretty pragmatic and I said to the life insurers, and to the banks, ‘Tell me what you want to do, that you can’t do’. Let’s try to solve real problems without having to go to the effort of setting up major regulatory overhauls, let’s look at what you want to do that you think you can’t."
Yet on Thursday at an invite-only event held at Parliament House, attended by ifa, Mr Jones announced the creation of a “new class” of financial advisers, creating an opportunity for banks to re-enter the advice sector alongside super funds and insurers.
In a surprising departure from his previous statements, the minister laid out a roadmap reminiscent of darker times, proposing the creation of the designation “qualified adviser”, a category that, he said, would generally consist of employees of licensed financial institutions.
“We must give consumers what they actually need,” the minister said on Thursday.
This announcement not only caught the advice community off guard but also stirred up old wounds, with the prevailing perception that it effectively rolls back some of the tough rules established by the Hayne royal commission, the impacts of which have primarily and deeply hurt advisers.
It also raises questions regarding the possibility of behind-the-scenes lobbying by the banks.
NAB has been the only bank to directly address Ms Levy’s recommendation, with Ross McEwan, the bank’s CEO, 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 can 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.”
While Mr Jones revealed the government’s policy stance on Thursday, the legislative materials are not expected until an unspecified time in 2024, allowing banks the option to withhold their plans until they have access to the detailed legislation.
ABA applauds announcement
ifa reached out to the big banks for comment on Thursday.
At the time of publication, CBA was the only bank to respond but only to say that it was still too early for the bank to comment in detail.
It, however, referred ifa to a statement issued by the Australian Banking Association (ABA) on Thursday, in which the body welcomed the reforms announced by Mr Jones.
“In recent years, too many Australians seeking simple financial advice have not been able to receive it in a cost-effective manner,” said ABA CEO Anna Bligh.
“While previous reforms were well-intentioned, the result has been that simple financial advice has been put out of reach for most Australians, millions of whom are at or approaching retirement age."
The ABA added that Thursday's announcement will "allow for Australians to speak to qualified advisers in financial institutions and receive simple advice, with strong safeguards in place".
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