Profession reacts to DBFO announcement, FAAA says it is ‘cautiously positive’

The Financial Advice Association Australia (FAAA) is pleased to see the government’s Delivering Better Financial Outcomes (DBFO) announcement addressed a number of concerns the body had, such as the addition of greater certainty on the provision of scoped advice, but Abood said the FAAA is “cautiously positive” as it awaits “final detail”.

“We are looking forward to seeing further detail on how these reforms will work, beyond the high level provided in today’s announcement,” the CEO said, after the Minister for Financial Services Stephen Jones made a long-awaited tranche two announcement in the late hours of Tuesday evening.

In a statement on Tuesday, Jones clarified that advice licensees will be permitted to charge a direct fee for the advice provided by the new class of adviser (NCA), but that the ability for funds to indirectly charge will likely remain the preferred option for most.

The option to charge for the advice provided by the new class of adviser was championed by groups such as the FAAA with the aim to enable a broader range of institutions to employ the new class of adviser, fostering neutrality across various advice models.

Commenting on this area of the government’s DBFO update, Abood said it is a welcome assurance that financial advice businesses, as well as product issuers, can employ this new class of adviser, and charge one-off or episodic fees.

“We certainly believe that advice firms should have this option. This provides a more level playing field, enhances competition, and gives consumers more choice in how they access simple advice,” she said.

“Quite early in discussions, many members told us they also wanted to be able to appoint these advisers. This could offer a more affordable means of providing simple advice to the children or grandchildren of clients, for example. It is pleasing that the government has recognised this and plans to legislate accordingly.”

ifa understands that in meetings held by Treasury with select groups in the lead-up to last night’s announcement, industry super funds had clashed with retail funds and advice stakeholders over the charging model for the proposed new class of adviser.

In June, Abood told ifa that the inability to charge for their services would make it almost impossible for advice firms to also employ NCAs.

No name yet for NCAs

Abood also confirmed on Tuesday evening that the name of the new class of adviser has not yet been settled and remains “an important matter of detail to be finalised”.

“Our position has been that the name should not include the restricted terms ‘financial adviser’ or ‘financial planner’,” she said.

The government had initially suggested that NCAs should be called qualified advisers, which understandably garnered an avalanche of criticism from the advice community.

Moreover, Abood said the FAAA is pleased to see that the NCA would become a pathway to becoming a qualified financial adviser.

“It’s extremely important that the education for NCAs can count towards a full financial planning degree, and that the NCAs of today can become the professional financial advisers of the future. Since the banks and other institutions exited financial advice, those traditional training grounds have been lost,” the CEO said.

“With our numbers having halved in the last five years, and only just over 300 new entrants last calendar year, we urgently need to replenish the ranks of professional advisers. We are pleased to see the government’s recognition of the importance of this.”

On the NCAs' scoped advice restrictions, Abood said: “We are particularly keen to see how this will play out in relation to retirement advice, and how it will interact with the sole purpose test – we look forward to seeing more detail from the government on this.”

Namely, Jones clarified on Tuesday that NCAs will be restricted to providing advice on products issued by “prudentially regulated entities”.

“They will be prevented from providing advice on more complex topics, such as establishing a self-managed superannuation fund or advising on a managed investment scheme, through a blacklist to be prescribed in regulations,” the minister said.

ASFA welcomed update

The peak super group welcomed the government’s announcement, highlighting in particular the collaborative approach the government took.

“It was a true collaboration and testament to the broad commitment all ASFA members, associations and the government has to ensuring more Australians have access to help with their retirement,” the Association of Superannuation Funds of Australia (ASFA) CEO, Mary Delahunty, said.

Delahunty said the group is particularly pleased to see that creation of the new class of advisers is accompanied by “strong regulations and consumer protections” to ensure high standards are maintained.

“These reforms are a clear signal of the government’s commitment to delivering better outcomes for Australians by addressing barriers to affordable financial advice,” she said.

“The future for Australians’ retirement savings is brighter with a more inclusive and modernised advice framework and we look forward to seeing the legislation progress in the New Year.”