Details still needed on NCAs and best interests duty

While the Financial Advice Association Australia (FAAA) has come out in staunch opposition to the government’s exposure draft for the next tranche of the Delivering Better Financial Outcomes (DBFO) reforms, other parts of the financial services industry were more positive – though many have called for more action in relation to the new class of advisers.

The draft legislation includes replacing the statement of advice (SOA) with a client advice record, as well as clear rules on what advice topics can be collectively charged for via superannuation and allow super funds to provide targeted prompts to members to drive greater engagement with superannuation at key life stages.

Not included is the modernisation of the best interests duty and the introduction of a new class of advisers; however, the government said it “continues to develop legislation” in these areas.

Tracey Scotchbrook, head of policy and advocacy for the SMSF Association, told ifa sister brand SMSF Adviser that draft legalisation on the reforms was expected in the second half of 2024, and what has been released for consultation does not include all of the proposed tranche two reforms.

“The timing of this exposure draft also means that any consultations with Treasury will be delayed due to the looming federal election,” she said

“Once the election is called, the Parliament will be dissolved, and Treasury will enter caretaker mode. We won’t see any legislation tabled until sometime after the election in the new Parliament.”

Insignia Financial chief customer officer Renee Howie said the client advice record is a much-needed reform; however, reforms to the best interests duty and the removal of the safe harbour steps are also necessary to facilitate more affordable advice for Australians.

“Allowing super funds to provide targeted prompts to members will drive greater engagement and lead to better outcomes for more members up to and throughout retirement,” she said.

Mary Delahunty, CEO of the Association of Superannuation Funds Australia (ASFA), said the changes represent a significant step forward in providing Australians with greater access to affordable, quality financial advice.

“The super sector believes advice shouldn’t be a luxury – it should be a fundamental part of the retirement journey,” Delahunty said.

She said the reforms build on the recommendations of Michelle Levy’s Quality of Advice Review and extensive consultations across the sector and consumer groups.

Delahunty added that ASFA also welcomes discussion on the new class of advisers, reforming the best interests duty and the safe harbour steps to provide advisers with confidence to deliver appropriately scaled advice.

Christine Cupitt, CEO of the Council of Australian Life Insurers (CALI), said the reforms are “meaningful progress”.

“Australians want advice that is simple, accessible and affordable. For the millions of Australians who are waiting in line for affordable advice about life insurance, reforms to the best interests duty and introducing the new class of adviser are essential,” she said.

“CALI has long advocated for more affordable, accessible financial advice by allowing life insurers to provide simple answers to simple questions at no extra cost to them.”

Blake Briggs, CEO of the Financial Services Council, said the reforms indicate the “government’s continued commitment to the reform agenda following the election”.

“Layers of red tape and onerous regulation has meant that financial advice now costs more than $5,000 in some cases, putting it out of reach for millions of Australians,” Briggs said.

“The government’s broader financial advice reform package has the capacity to reduce the cost of providing advice by 40 per cent.”

Vanguard Investments Australia managing director Daniel Shrimski added that the draft legislation brings the sector closer to providing advice for all Australians.

“We also welcome proposed changes in the draft legislation to allow super funds to use ‘nudges’ to support members with important decisions about their retirement savings,” Shrimski said.

“There is a need for a full spectrum of financial advice, support and guidance, based on consumer preferences, needs and circumstances.”