Liberal MP introduces bill to streamline advice processes

In parliament on Monday, Liberal MP Bert van Manen introduced a private member’s bill – the Corporations Amendment (Streamlining Advice Process) Bill 2024 – saying that “this bill is designed to improve and streamline the financial advice process”.

Speaking in parliament, van Manen said: “As we have seen over the past 16 years, a massive increase in red tape and regulation in this sector resulting in advice being too expensive, too hard to access, and strangled by red tape.”

“We have seen advisers close their books because they are flat out managing their existing client base because of the regulatory impost and they are no longer able to take on new clients.”

The purpose of this bill, van Manen said, was to streamline the engagement process between the financial adviser and their client, and it does this in two ways.

“Firstly, by creating the requirement to provide a clear and concise letter of engagement, which will be provided to a client prior to receiving any financial advice. This letter confirms a clear and transparent agreement between the adviser and the client that clearly outlines the scope of the advice to be provided,” he said.

“Secondly, this bill removes the requirement for the provision of a statement of advice. The reason this is important is that these are currently 100-page documents that nobody reads.

“The important bit in all of this is what is the advice that is being provided and how does that relate to the scope of the advice being sought and that is why in this bill we replace the statement of advice with what is called a record of advice.”

The MP explained that the term record of advice was already “well understood” in the profession, and was an existing provision within the Corporations Act.

“These changes are meant to ensure that the client will be provided with the advice that they seek and in a way that is clear and concise, and easy to understand. More importantly, in simplifying this process it is expected to reduce the cost and the time taken to produce statements of advice in that they are being replaced,” van Manen said.

He explained that he was not of the view that statements of advice (SOAs) should be removed altogether, because “I think the agreement between the adviser and the client should be in written form”.

“I don’t believe that having a verbal understanding or agreement in this space, given the complexity of some of the work that is done for the clients, is a good outcome for either the client or the adviser.”

“These changes also ensure that the advice provided to the client is directly relevant to the scope of advice sought.”

The bill was seconded by shadow financial services minister Luke Howarth, who commended van Manen in parliament and reiterated what he perceives are Labor’s failures on the advice front.

“Labor’s inaction, the Albanese government’s inaction, on financial advice reforms is leaving Australians under advised and underinsured. Now, it’s been 689 days since Michelle Levy handed down to the Albanese government her Quality of Advice Review final report,” Howarth said.

“The government has failed advisers by leaving implementation of the review’s most important red tape reducing recommendations to the very last minute, including the recommendation to remove statements of advice.

“Action on reforming the burdensome statement of advice process is long overdue and these reforms will significantly reduce the time and cost of providing advice.”

According to the explanatory memorandum, the bill was informed by and would build upon Levy’s 2022 Quality of Advice Review, specifically ‘Recommendation 9 – Statement of Advice’ and the ‘Good Advice Duty’.

The memorandum explained that the bill, if legislated, would enable the creation of a “clear and concise letter of engagement, prior to any financial advice being provided” as well as a streamlined record of advice.

“This confirms that a clear and transparent agreement is in place, before any advice is provided, while standardising the administrative requirements for all types of advice provided,” the explanatory memorandum said.

“The bill also reduces the administrative burden on providing entities, through the streamlined process of engagement created, for all forms of advice sought.”

The letter of engagement would, according to the EM, outline the scope of advice to “ensure there is a clear understanding and agreement between the providing entity and the client on the scope of advice to be provided”.

It added that SOAs were “burdensome, repetitive and rarely read by clients, with their complexity leading to significant additional administrative work for financial advisers, leading to increased costs of advice for clients”.

The bill would see SOAs replaced with a record of advice, which it said would make advice documents easier for clients to digest and also reduce the administrative burden on businesses and costs to clients.

“The bill will introduce the requirement that the ROA outline why the advice is ‘directly relevant’ to the agreed scope of the advice sought and the client’s personal circumstances,” the EM said.

“As with an SOA, it is envisioned that an ROA will be provided prior to providing any advice.”

The debate is adjourned and the bill will be read a second time at the next sitting.