Speaking on a BT webinar, head of financial literacy and advocacy Bryan Ashenden said that despite the delay in delivering draft legislation for the second tranche of the government’s Delivering Better Financial Outcomes (DBFO) reforms, ongoing consultations could be a net positive.
“We have seen for a couple of months now, and still ongoing right now, targeted consultation on these measures. This is targeted consultation, sort of pre-drafting,” Ashenden said.
“This involves Treasury meeting with various industry groups, industry associations, some licensees, trustees and so on, talking about, ‘Well, here’s what the intent of the Quality of Advice Review recommendations are, and how do we draft the legislation to make this point?’
“Perhaps there’s more focus on that targeted consultation at the moment, knowing what happened with charge one, and the level of discussion and disagreement over the physical drafting that initially came through.”
The delivery timeline for tranche two was pushed back essentially as soon as the first DBFO bill had passed through Parliament, with Financial Services Minister Stephen Jones signalling that the next round was further away than some in the advice sector might like.
Jones simply offered the vague description that it would be “developed over the second half of the year”.
Speaking on a Financial Advice Association Australia (FAAA) webinar in August, chief executive Sarah Abood said it felt like progress had “stalled” on tranche two, though did note the FAAA has had some informal meetings with Treasury.
“What we have been advised is that formal consultations are due to take place shortly, and the intent is that we will see legislation for tranche two. Originally, it was around the year, and that date’s been drifting a bit,” Abood said.
“We’re now sitting in August; I don’t think we can say it’s the middle of the year anymore. The last statement we heard from the minister, I think, was this calendar year. We will have some roundtables and some formal consultation before that, though, because there are some matters in this legislation that will be quite tricky to solve.”
Ashenden explained that there is still an expectation the government will deliver the draft legislation before the end of the year.
“Exactly when that is, again, who knows? However, I would say it is very unlikely that we’ll be in a position to see a bill go into Parliament this calendar year,” he said.
“It might happen towards the end of November. It’s possible, but certainly I don’t think we’re going to have legislation into Parliament and passed this calendar year. It’s likely to be in the first few months of 2025.
“The government wants to have this legislated and passed before the next election, which is expected to be in May 2025.”
Looking at the available sitting days for Parliament through the rest of the calendar year, Ashenden said November is the most likely option if it does indeed get tabled before 2025.
“Even if it does manage to get in, the chances of it being passed are very, very low, because no doubt, once it does get introduced, it seems to be pretty standard practice that it’s going to be referred off to the Senate committee to have a look and come back with report,” he said.
“So that might be happening after the 28th of November, ready for when Parliament resumes in the new year.”
In August, Abood expressed less optimism, noting that time is running out for the government to get the more substantial piece of legislation passed before the next federal election.
“I’m not sure how likely we are to get that legislation passed in the current term of government,” she said.
“I’m hoping we’ll see the draft legislation. Everything depends on how controversial that legislation is seen to be.”
What to expect
Looking at the substance of the reforms, Ashenden said the amended best interests duty with the removal of the safe harbour steps should provide “additional clarity that limited or scoped or scaled advice can be provided in accordance with a best interests duty requirement”.
“We’re waiting for the new design, what it looks like to have a principles-based advice record, and it’s really to understand what needs to be included within it, and perhaps, hopefully, what information cannot be included in that new advice record,” he said.
“That’s the way that you probably make it simpler, by making it clear not only about what has to go in, but what also must not appear in it. Because if you don’t have the must nots, you run the risk that it just comes back to what we have today.”
The new class of adviser is another area that Ashenden is keen to see the actual wording of the legislation, particularly given the amount of discussion that has already played out on the way it could work and the lack of detail from the government so far.
“Some of the discussion at the moment seems to be around, well, who can actually qualify to be this new class adviser? Is it something that should only be available, at least initially, to superannuation funds to offer? Should it be broader?” he said.
“The comments that came out as part of the government’s response certainly didn’t seem to be limited. But you know, I think there are questions the government is grappling with at the moment as to how wide or how broad should it be. If you make it too broad, does that create unnecessary risks across the industry?”
The issue of being able to charge an advice fee against the member’s superannuation account for this advice is another issue that is unclear, with Ashenden noting there are multiple options on the cards.
“What the government has indicated is that there would essentially be a list of advice topics that it is permissible to have charged against a member’s account, and if it doesn’t line up with that list, then you cannot charge for it,” he said.
“Now that’s whether it’s a collective charging mechanism, that’s whether it’s a direct to the adviser, so personalised, if you like, charging mechanism, that same list of topics is expected to apply. So we need quite see exactly what that will be.”
It would probably better for this to be delayed until a new government is formed (hopefully). I expect Treasury to ignore any group associated with financial advice or business, but rather consult with “stakeholders” who have never given advice, base their decisions on ideology, and have vested interests in retaining FUM or looking for government funding. Maybe a new government would be more open to the needs to professional advisers.
“Some of the discussion at the moment seems to be around, well, who can actually qualify to be this new class adviser? Is it something that should only be available, at least initially, to superannuation funds to offer? Should it be broader?” he said.
Special treatment for Super Funds? Why not go all out? Am I missing something? Why have real Advisers? What is the aim here – just to allow Super Funds to control adviser to their members – and keep real Advisers covered in Red Tape and regulations?
Isn’t Best Interest of Members is completely different to Best Interest of individual?
Being a self confessed specialist on regulation in both Australia and the UK it’s about time Mr jones listened to the professional bodies so applaud the first step in having discussions with them on DBFO tranche two.
The whole ethos of regulation in the UK is to involve the professional bodies in discussions to help shape the future of financial services regulation, and legislation.
There are published clear and concise structures, frameworks and working group collaboration agendas that have been set up between the financial conduct authority (FCA) to achieve this.
It really comes down to the basics of organisational change philosophy
Don’t implement a change process unless you have involved the subject matter expert in the planning, formulation and implementation stages of the project otherwise the change process is doomed to fail before you start
Go back to basics Mr Jones and look at your structures, frameworks and collaboration between the government, professional bodies and ASIC and restructure this
Given ASIC has regular collaboration meetings with the FCA this should be too hard to get an idea from them on how they have set up their collaboration structures and frameworks with various working groups to help them shape future legislation
You can consult as much as you want, but if you totally disregard what you’re being told because you’ve already got a preconceived outcome, then it doesn’t really achieve much
This, 100%. The government hasn’t published the last formal round of submissions. Why on earth co sult more when Jones has gone to great lengths and specifically stated he is not bound or interested in rollowing any recommendations? The best outcome e at this point we can hope for as a profession, is that no legislation is put forward on the matter and Labor lose the election. That is now the best possible outcome for Australians and real financial advisers.