NCA guardrails ‘terribly restrictive’, limiting benefit for Australians

In December, Financial Services Minister Stephen Jones released further details on tranche two of the Delivering Better Financial Outcomes (DBFO) reforms, including clarification on the guardrails for the proposed new class of advisers (NCA), previously referred to as “qualified advisers”.

According to the statement, NCAs will be limited to advising on products issued by “prudentially regulated entities”, preventing them from providing advice on more complex topics, “such as establishing a self-managed superannuation fund or advising on a managed investment scheme”, creating a clear boundary between professional advisers and NCAs.

Discussing this last week, WT Financial Group chief executive Keith Cullen argued that NCAs should be able to provide enhanced general advice, arguing that the current proposal won’t adequately address the under-insurance and under-advised challenge.

“It will be prescriptive about what that new class of adviser can advise on, and it will be terribly restrictive on how that new class of adviser can be commercially viable because they won’t be able to accept a commission if the government has its way and they’ll only be able to advise on APRA-regulated products,” Cullen said on The ifa Show.

Cullen explained that NCAs could, for example, be useful for a client looking for a cost-effective way of storing a large sum of money for 12 months for a home deposit; however, based on Jones’ December update, they wouldn’t be able to offer this kind of assistance.

“This is the type of thing I want them to be able to help with, and if we restrict it to APRA-regulated products, it’s not delivering for anyone. If we restrict them to not being able to earn a commission, well, we’re not solving one of the biggest problems that we have in terms of access to advice.

“There’s not enough people out there talking to consumers about the importance of life insurance and trauma and TPD and protecting their income, so it doesn’t solve those issues.”

However, the CEO still believes there needs to be some limitations on what they can do, stating that they should be able to advise on anything “as long as it stops short of making a recommendation” and empowers customers with tailored information relevant to their circumstances.

“If you want that new class of adviser to be able to make a recommendation, express a professional opinion, that’s where you lose me. You lose me completely on it,” he said.

“We have fought too hard for this to be a profession with very high education standards and anything that sets out to dilute and undermine that does not have my support.”

When it comes to the charging model for NCAs, a topic which has been a point of contention since their conception, Cullen argued that they should be able to accept commissions.

However, based on Jones’ December announcement, firms employing NCAs will be prohibited from charging ongoing fees or accepting commissions, being restricted to one-off fees for their services.

The federal election

Seeing as the financial advice profession is currently in a state of limbo as it waits on the next round of reforms, the upcoming election is of particular importance as it could significantly impact the outcome of those reforms and the speed at which they are delivered.

As it stands, exiting minister Stephen Jones has been highly criticised for the exorbitant amount of time it has taken for these reforms to come to fruition, with the first tranche exceeding the initial timeline considerably and a draft of the second tranche yet to be seen.

On the other hand, appearing on The ifa Show in January, shadow minister Luke Howarth has stated that the Coalition is committed to implementing all of Michelle Levy’s recommendations as fast as possible if they were successful in the upcoming federal election.

However, following Jones’ announcement that he would retire from federal politics at the next election, the question of who Howarth will be up against is in question, with Jones’ successor yet to be revealed.

Even so, Labor appears to be making last-minute headway on advice reforms, with Jones announcing financial adviser education reforms last week and allegedly stoking hopes of seeing a draft of the DBFO tranche two reforms prior to the election.

“He seemed to indicate the other day that he’ll get exposure draft legislation out before the election. Now, I hope that is the case because if it is the case, that then really gives whoever takes over from Jones, if Labor do form government again, the blueprint of what gives them some momentum to deliver on,” Cullen said.

“So, I’m hoping that is the case so that we don’t have to reset if Labor get returned.

“I think if he gets it out before the election, it’ll really force the opposition to take a position on it and say whether they’re going to support it and if they’re not going to support it, what aspects of it need to change, which then obviously gives them the momentum to hold people to account if we end up with a Coalition government.”

To hear more from Keith Cullen, tune in here.