Industry reacts to QAR draft law: Concerns raised around SOA exclusion

The government has released the first tranche of draft legislation for its Delivering Better Financial Outcomes package of reforms – a package aimed at reducing red tape, as highlighted by Minister for Financial Services Stephen Jones.

But while the initial draft legislation adopts around half of the recommendations of the Quality of Advice Review (QAR), noticeably absent are recommendation five, proposing the elimination of safe harbour steps from the best interests duty, and recommendation nine, advocating for the substitution of the lengthy and legalistic statements of advice (SOAs) with a financial advice record for consumers that is more fit for purpose.

Among the recommendations that made the first cut are recommendation seven, which clarifies that funds are allowed to pay a member’s financial advice fees from their superannuation account, recommendation eight, which consolidates different ongoing fee consent documents into one simplified document, and recommendation 10, which allows more flexibility in how financial services guides are provided.

Also included in the first batch of draft legislation are recommendations 13.1 to 13.5 which clarify that monetary or non-monetary benefits given by a client are not conflicted remuneration, and recommendations 13.7 to 13.9 which introduce written consent requirements for consumers before they purchase an insurance product that will result in a commission payment.

In a statement on Tuesday morning, the Financial Advice Association Australia (FAAA) welcomed the release of draft legislation but noted its concern regarding the exclusion of changes to SOAs and safe harbour.

“We are concerned that the rationalisation of statements of advice and the removal of safe harbour steps from the best interests duty have not been included in the draft legislation at this time,” said FAAA chief executive officer Sarah Abood.

“These are important elements in cutting unnecessary red tape and have the potential to meaningfully reduce the cost of providing advice.

“We will be seeking further clarification from the government on the timeframe for these measures.”

Similarly, Peter Johnston, executive director at the Association of Independently Owned Financial Professionals (AIOFP), said in a statement: “Whilst we are pleased it’s a step in the right direction but it is missing the point around the cost of advice that needs to be immediately addressed, which is disappointing”.

“SOA’s are unwieldy, expensive and most of them technically in breach of the Corporations Law around transparency and simplicity for consumers,” Mr Johnston opined.

“The consent forms were put in place to control the bank executives and their fee for no service fiasco, they are long gone but advisers and consumers are lumbered with this unnecessary, frustrating and expensive paperwork. The minister should note that consumers see no need for them.”

Recommendation 8 applauded

For the FAAA, the inclusion of recommendation eight stood out as the winner, with this particular aspect of the legislation set to consolidate ongoing fee consent requirements to a single standard consent form.

“Delivering on this recommendation will save many hours of frustrating, inefficient, and unnecessary work for both advisers and their clients and we are very happy to see this included in the first tranche of legislation,” Ms Abood said.

Another piece of important news for the FAAA’s members is confirmation that commissions on life insurance can continue to be paid to advisers, with a one-off written consent from the client before the beginning of the policy.

The FAAA also welcomed the government’s commitment to announce its final position on the outstanding recommendations of the QAR before the end of the year, with further legislation to be released in 2024.

“We are keen to see the government move quickly on the remaining recommendations to eliminate the remaining unnecessary red tape and ensure we can expand the availability and affordability of financial advice for all Australians. It is also important we see a quick turnaround on this draft legislation so real reforms are implemented as soon as possible,” Ms Abood said.

“The FAAA will respond fully to the draft legislation later this week with an update to members.”

The government is currently consulting on the draft legislation with feedback welcome until 6 December.