‘Another compliance layer’: Does the new advice bill stack up?

As the Coalition seemingly ran out of patience waiting for the government to present draft legislation to finalise its response to the Quality of Advice Review, Bert van Manen introduced the Corporations Amendment (Streamlining Advice Process) Bill 2024 in Parliament on Monday.

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.”

In essence, the bill would see the requirement for financial advisers to provide a “clear and concise” letter of engagement before a client received advice, while also removing the need for a statement of advice (SOA) and replacing it with a simplified record of advice.

Shadow financial services minister Luke Howarth used the occasion to once again highlight the slow rollout of legislation to implement the QAR’s findings, arguing that the government’s “inaction” is leaving Australians under advised.

“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.”

Can the bill achieve its goals?

The noise coming from the opposition is certainly a positive for advisers that have been waiting almost an entire term of government for movement on the major tranche of QAR-related work.

According to Phil Anderson, general manager of policy, advocacy and standards at the Financial Advice Association Australia (FAAA), having both sides of politics focused on advice is a “really good space for us to be in”.

“Bert’s a good guy. He's a financial adviser in the Parliament, and he's someone who we've talked to over many years, and I think he has a real commitment and an interest in in our sector. I think it's great that he has engaged on this particular subject,” Anderson told ifa.

“We will shortly have the DBFO tranche two proposal, and in that sense, we'll have two potential pieces of legislation dealing with the rationalisation of SOAs. DBFO will have much more than that, because Bert is just really focusing on how we try and fix the problem with excessively long SOAs that are difficult for clients to read and expensive to produce.

“So, it's a really good space for us to be in that we've got both sides of politics looking at how they can fix the problems that we have.”

However, there are concerns that the bill would do little to reduce the burden on advisers, with Association of Independently Owned Financial Professionals (AIOFP) chair of technical services Lionel Rodrigues saying it “adds another compliance layer”.

“Just to be clear, what is proposed here is a statutory letter of engagement as well as an SOA,” Rodrigues said.

“The SOA proposed in 944A, B and C is not materially different to what is required to be provided now. I note that there is no repeal of s947B(6) of the Corporations Act, which requires an SOA to be provided to a client. All that is required in reality is that the SOA is ‘clear, concise and effective’.”

He added that the bill would see three documents being provided to clients: a letter of engagement, a statement of conflict of interest and the actual record of advice.

“You will find all of these requirements in s944C of the proposed Bill. S944C (1) provides: ‘give the client a copy of each document’. Currently, clients receive only one document,” Rodrigues said.

AIOFP executive director Peter Johnston added that the blame for the size of SOAs can largely be attributed to ASIC complicating the “clear concise and effective” requirements through RG90 and RG175.

“It is about time ASIC realised that advisers do not want their clients’ savings compromised in any way or they get banned, lose their clients and their business,” he told ifa.

“We should be all on the same page to protect consumers and this means the Canberra bureaucrats should sometimes listen to advisers with practical compliance outcomes.”

When will the government release DBFO tranche 2?

Following van Manen introducing the bill, a spokesperson for Financial Services Minister Stephen Jones told ifa the next package of reforms is on the way but did not provide a timeline.

“The government is drafting the next tranche of reforms for introduction which will cut red tape on financial advisers, including by streamlining statements of advice, removing the safe harbour steps and modernising the best interests duty,” the spokesperson said.

“The government’s reforms are a package which will reform the financial advice framework as a whole. It will provide certainty to stakeholders and better affordability for consumers without compromising quality.”

This is largely in line with the minister’s statements last week at the AFR Super and Wealth Summit, signalling that it would be introduced before the country heads to the polls.

“We have delivered the first tranche of reforms, and the next tranche of reforms is being drafted and prepared for introduction,” he said at the time.

“In this tranche of reforms, we will modernise the best interests duty and remove the safe harbour steps. We will reform statements of advice so that they are actually usable by the consumer who paid for it to make informed decisions.

“And we will create a new class of adviser who will be able to provide simple and safe advice. Advice will be safe – so that we protect Australians from bad advice. Advice will be helpful – so that it is useful and fit for purpose. And advice will be quality – so that it delivers the best outcomes for Australians.”

Anderson told ifa that the minister’s statements suggest that it could be “closer than we had anticipated”.

“We've obviously been desperately waiting for this for a long time. I think the statement of last week and his earlier commitment on the day that DBFO tranche one was passed was that we would see draft legislation by the end of this year,” he said.

“I think you would normally expect that that won't be any later than, say, the end of the first week of December. So, we're now into the last few weeks of when it might be likely to come out.”