David Barrett, an independent consultant and technical advice specialist, said there is a “tension” between the introduction of the new class of adviser (NCA) and the government’s decision not to move forward with the proposed good advice duty.
“This level of advice was intended to be at this good advice duty level,” Barrett told ifa.
“I think there’s a tension in the government not going ahead with the good advice duty, and yet still implementing this secondary level of advice, which is intended to be about simple concepts and simple advice, whatever that might mean.”
In addition to proposing a new statutory best interests duty exclusively for financial advisers, independent chair of the Quality of Advice Review (QAR) Michelle Levy had backed the imposition of a separate “good advice duty” under recommendation four of her final report.
This new obligation, which she recommended be enshrined in the Corporations Act, would have applied to all providers of personal advice to retail clients, and was, according to Levy’s earlier comments, the crux of the QAR.
Levy argued that implementing a duty of good advice could effectively reconcile the conflict between the two obligations currently confronting super funds – a duty to act in the best interests of the members as a collective, and the duty to act in the best interests of individual members.
But in delivering the government’s final response to the QAR, Financial Services Minister Stephen Jones said that “Australians deserve the best, not just good”, putting a clear full stop on the good advice debate.
In an update on the second tranche of the Delivering Better Financial Outcomes (DBFO) reforms earlier this month, Jones clarified 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,” Minister Jones said.
“This will allow these advisers to focus on simple topics that most Australians would benefit from more information on. It will also ensure that there is a clear boundary between the new class of adviser and professional financial advisers.
“It is the government’s vision that the new class of adviser serves as one entry point to rebuild the financial advice profession, and the government remains committed to reforming the broader education pathways for financial advisers.”
However, exactly what this simple advice will look like is still murky.
“What is simple advice and what’s not is yet to come, and that’s going to be critical,” Barrett told ifa.
“What an [NCA] can advise on will be dictated to, I imagine, by the definition of what’s simple advice and what’s not simple advice, and then that simple advice will still be subject to a best interests duty, but then the best interests duty is being revised to try and make it clear that scaled advice can be given.
“In a lot of ways, I think you sort of end up pretty close to a good advice duty when you look at that. So, we don’t know what the best interest is going to look like, we don’t know what simple advice is going to be.”
In his announcement, Minister Jones did note that the government aims to “modernise the best interests duty by providing legal clarity that will allow advice on single or limited scope issues if this meets the client’s needs”.
Again, however, there is not yet draft legislation that details how this will be delivered.
The scaled advice ‘perception problem’
According to Barrett, there is a “perception problem” around scaled advice, with the government and regulator believing the rules are clear yet that’s not holding up in reality.
“The starting point for this is understanding where we’re at in the industry at the moment,” he told ifa.
“It seems to be more of a perception issue than a reality. A lot of the government comments – and ASIC has a regulatory guide that spelled out how to provide scaled advice, so the regulator and government don’t seem to think there’s a problem.
“But it’s come out of a conservative approach across the industry in general, especially from the large licensees that have these compliance teams that have come in and tend to be very conservative in their interpretation, because they’re so scared of getting a rap over knuckles from the regulators.
“You have this idea that maybe practice doesn’t align with what the intention in the legislation was in the first place, and the regulator and government is around the current legislation. So you know, how do you solve for that?”
Barrett added that there are also issues around the Code of Ethics and providing scaled advice if an adviser does not understand their full circumstances.
“If you have a look at the guidance around the Code of Ethics, it suggests that although you can have scaled advice – and it’s pretty clear scaled advice is OK – a financial adviser subject to the Code of Ethics if you’re going to give scaled advice, you’ve got to be clear that it’s in the client’s best interest to provide advice on that particular issue as a priority,” he said.
“So, if you identify something that should be prioritised before what the client’s actually asking for, you’re under a duty to provide advice on that first, and that then sort of loops you back that you need to understand the client’s full circumstances in order to be able to prioritise what the client needs versus what they’re asking for when they walk in the door to seek advice.”
In order to get around this sticking point, Barrett said there would need to be a rethink of the interpretation of the Code of Ethics as well as the best interests duty.
“Removing the safe harbour steps is a really important step forward, although some would argue it’s not necessary,” he said.
“But then, clarification and maybe loosening up the best interests duty a little bit to look more like a good advice duty where as long as the clients put in a better position, then it should be OK. There shouldn’t be this idea that you need to provide the best possible and how onerous that might be.”
Whether NCAs are even subject to the Code of Ethics, Barrett added, is still a question mark that will need to be tied in with all of these considerations.
“I’m not surprised that the government’s taking a long time to work through this stuff, because it’s not easy, there’s no obvious solution that I can see. Even the drafting, revising the best interests duty itself, is a significant piece of work,” he said.
Let’s hope NCA under Jones never happens and Labor are out. It is the best hope for Australian consumers and Advice Professionals
But the LNP are all for the NCAs as the Banks & Life CO’s want the BackPackers Sales Agents flogging product for them.
And the Banks & Life CO’s donate $$$$$$$$ Millions pa to the major parties for favours they want
There is no way in hell there should be two classes of advisor. It’s a flawed model that will more than likely require retail clients to seek out two different advisors. It’s completely stupid.
You can guarantee that the ISF’s will push for most of the ‘simple advice’ retirement options including contributions, pensions, Centrelink, super fund & risk. As we all know, these topics may indeed appear ‘simple’ on their own, but often evolve into very complex strategies when considered as an overall plan designed with the client’s best interests in mind. I have empathy for the clients of industry super funds. Sadly, most won’t know what they don’t know.
Simple Advice will be everything except SMSF advice.
Industry Funds backpackers will say we can’t Advise on SMSFs and also they are really bad, don’t have an SMSF.
Why do you think degree qualified accountants have been kept out of the NCAs, because Industry Super hate them recommending SMSF
Our industry is somewhat in parallel with the medical profession.
• You have Doctors (qualified practitioners, some with specialities, others more general)
• Paramedics (limited in advice but first line responders before progressing to Doctors)
• Nurses ( great knowledge but usually under Doctors supervision)
• Pharmacy assistants (no medical training but can advise on which headache tablet to take…Panadol or our homebrand)
Compare that to (compare the pair) to the advice industry we are similar.
• Degree qualified and experienced advisors (some with specialities, others more general)
• Paraplanners (great knowledge but not giving advice like nurses and most likely under supervision)
• And the new class NCAs, which will be like Pharmacy assistants. (very qualified in their home brand of superfund and basic simple advice)
So, my question is, given there is a shortage of Doctors particularly in regional centres, why not create a new class of Doctor from all the non-Doctor categories as above?
Doesn’t anyone remember the Hayne review where education standards were called into account?
Yet here we are doing an about face and creating NCAs from a lower qualified base.
What could go wrong.
There has been moves to allow Pharmacists to prescribe “routine scripts” such as for the contraceptive pill, UTIs, ear infections, for example. This is, in part, due to a shortage of GPs. No surprise, the AMA is demonstrating the same moral outrage that some financial advisers are in this discussion about a new class of financial advisers. Change is hard but inevitable and it is easy to criticise and point out the potholes in the suggestions, much harder to come up with viable alternatives. There will always be a group of people that will never engage with a financial adviser but, because our retirement income system is so complicated and the intersection between aged pension, self funding and even aged care is important for some outcomes, advice is needed. Either the government provides (market shortfall intervention) or some latitude is given to the superfunds that have members of this group in their membership. [The government did introduce a public advisory service in Social Security called the FIS Officer. Not sure if that worked – government is bad at providing these type of services.]
New Class of Adviser = old class of sales rep.
Retirement advice is not simple advice
Super contributions is not a simple advice topic
Selecting investments is not simple advice
However the NCA’s will be given free reign to advise on all these things, with minimal quals and experience, if any, without important consumer protections.
Meanwhile, experienced, qualified advisers are trapped in a red-tape straight jacket unable to see any more than 1 client per day.
What a shocking outcome from our conflicted and corrupted bureaucratic and political system.
They won’t even produce a simple standardised form for collecting fee consent, which shows you how determined they are to keep the playing field unlevel for IFA’s in favour of their mates at the big end of town.
The “elephant” in this room will be that, this “simple advice” for a superfund personal advice provider will extend no further than the Fund’s products. Under any standard, that can’t be considered to be in the client’s best interest every time. If they have an accumulation phase interest and turn 60, then the superfund personal advice provider could advise on how to start a pension. Whether that accumulation balance was in the right spot for that member will remain a mystery. If you assume (and that can be fraught for an adviser) that the member is a happy member than the advice to commence a pension in the exiting fund could work.
It concerns me that Jones – (many things concern me about his lack of understanding of his portfolio versus his enormous understanding of Industry funds) – described “insurance policy advice” as “simple advice”. Insurance advice is one of the most difficult compliance areas for advisers so again, we have the presumption that the insurance the member has (and often it is Group insurance) is best for the client.
When a person first joins a superfund, it is often not an advised decision. It is often the employer default fund (that suits workplaces with industrial awards) so the person has little to no knowledge of what they have signed up. Balances are low so it isn’t a focus. Every time they move jobs the superfund comes along so they have, in effect “got” their superfund for life. This uninformed member will eventually age and want to get a pension so they will think nothing of calling their lifelong superfund call centre to get the advice. If these are the targets for this new “class of adviser” then so be it. Ignorance ensures the need for nanny states. But in the long run, experienced, qualified advisers are not going to wave this designation through without a fight. Until a Minister is in the portfolio that gets financial services, the road is going to be rocky.
Jones will say that iinsurance advice is “simple advice” because he is being fed the Treasury line. His office is all Treasury – he hears no other opinion. And heaven help us should he chose to seek other opinion, because he would be straight back to his mates in the industry funds. He can’t ignore them – they are now, directly and indirectly, the principal funders of Labors election campaign. Just like the Coalition looked after the banks when they are in “wealth” – big donors get Big Bang For Buck. Follow the money! Remember the banks funded FASEA for three years to the tune of $11 million.
So let’s say we have a 30-year-old fund member who has just taken out a big mortgage (perhaps even from an industry fund lender) and the NCA at thhe fundhas been asked to give risk advice to our member, who also happens to have a couple of kids.Does anyone honestly think that our NCA, when adding up the amount of life cover for our member to cover off his mortgage and look after his missus and kids, will explain to that member that his $250,000 of default Death & TPD cover, which has been factored into the calculation, starts to DERCREASE COVER from age 37 onwards
Of course not. His employer the industry fund would be all over him. Sadly it would all go to shi#t, and we will have another Royal commission
We are in this stupid bloody mess because of overreactions from successive governments of both persuasions that compliance had to be piled on more compliance, thus increasing advice costs.
the elephant in the room?
scaled advice ( aka simple or limited ) in superfunds excludes personal circumstances ( aka dual incomes, debt and or assets ) so it’s effectively giving advice with up to 80% of relevant content excluded. How minister Johns considers this best in class is beyond us yet it’s enshrined in legislation to help the superfunds give advice. Go to an adviser outside the ranks and the advice includes all circumstances….so how will an army of unqualified NCA’s help to solve this ?
The Government is taking a long time to work this out because they have conflicted priorities in relation to whom they serve. Is it Unions, is it Corporations, who are the biggest Donors that keep topping-up the trough? It ain’t the hapless adviser.
Based on these new standards, if a retail client seeks the services from an advisor (that can only provide limited advice), and based on further discussion requires further advice around retirement planning analysis, they would then need to seek the services of a second advisor. How stupid is that and goes totally against the reason they wanted cost effective advice to begin with.
You really believe the “Qualified Adviser” is going to refer?
Simple advice will be whatever the Industry Funds tell their puppet Jones to try and implement but doubt he will have enough time before the next election at which time he and his labor colleagues will become the opposition once again…!
I heard from a “connected” client of mine yesterday that there is a brilliant grass roots campaign underway to unseat ALBO at the next election! Remember, even Josh Fridenbergs lost his seat and he thought he was a shoe in for the next PM spot lol!!!