First QAR draft legislation a ‘missed opportunity’: FSC

Following Financial Services Minister Stephen Jones announcing the first draft legislation for the government’s Delivering Better Financial Outcomes package of reforms, the FSC said it welcomed the commitment to removing red tape.

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.

“The government’s release of exposure draft legislation is a down payment on their commitment to make financial advice more affordable and accessible to Australian consumers,” said Blake Briggs, chief executive of the FSC.

“The government’s first tranche of legislation contains a modest but important package of reforms that will start to simplify the regulatory framework without reducing consumer protections, and has the support of the financial services industry.

“This modest package of changes is just the start, however, to ultimately reduce the cost of providing financial advice, which has been pushed to over $5,000 by layers of regulation and red tape.”

Mr Briggs, however, did note that the government’s failure to include abolishing the safe harbour steps for meeting the best interests duty and simplifying statements of advice (SOAs) was a “missed opportunity” to get the ball rolling on important reforms.

“It is a missed opportunity to have deferred implementing key recommendations on abolishing the ‘safe harbour steps’ and simplifying statements of advice, which would achieve the most in reducing the regulatory cost burden on financial advice,” Mr Briggs added.

“The FSC is pleased, however, that the assistant Treasurer has offered a clear commitment to have a finalised government policy position on statements of advice and abolishing the safe harbour steps before the end of the year.”

The FSC’s stance is broadly in line with the reaction from other industry bodies and associations. On Tuesday, the Financial Advice Association Australia (FAAA) also 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”.

“SOAs 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.”