IFPA argues CAR could become ‘rebranding exercise’ for SOAs

In its submission on the Delivering Better Financial Outcomes (DBFO) exposure draft legislation, the Institute of Financial Professionals Australia (IFPA) has criticised the client advice record – or CAR – proposed to replace statements of advice (SOA), arguing it doesn’t do enough to address the existing issues with the document.

One of the primary issues raised by the group is that the CAR, while well-intentioned, “may not deliver meaningful reform”.

This is an argument that has been raised by many since the former financial services minister, Stephen Jones, released the exposure draft in March shortly before the election was called.

Specifically, some have criticised that the new CAR document is simply an SOA with a name change while the Financial Advice Association Australia (FAAA) argued in its submission that advisers should be given more reign to utilise their professional judgement.

Voicing similar sentiments to the FAAA, IFPA explained that flexibility in advice documentation is an important step towards providing more tailored advice experiences that better meet the needs of clients.

“Without a shift toward a genuinely principles-based model, this risks becoming a rebranding exercise rather than a reduction in red tape. In our view, the draft legislation fails to meet the government’s goal of delivering ‘clear, concise, and fit-for-purpose’ advice records,” the submission said.

“A more principles-based approach was expected in the draft legislation, one that reduces prescriptive requirements and places greater trust in professional judgement.

“Unfortunately, this intent has not materialised in the current draft legislation, which is a disappointing outcome after years of consultation aimed at making quality financial advice more accessible and affordable.”

On top of this, the group raised concerns that alternative advice providers, including the new class of advisers (NCAs) – who potentially won’t be required to provide any such document – are being given an advantage over professional financial advisers, which are currently burdened with the administrative and compliance load that comes with producing an SOA or CAR.

“More troubling is the discrepancy in obligations between advisers and other advice providers,” its submission said.

“Superannuation funds, for example, will be able to provide advice without meeting the same regulatory standards, such as preparing a CAR or fully considering individual member circumstances.

“This raises the risk of conflicted advice and undermines the intent of the reforms. If, as expected, the new class of advisers are also exempt from ASIC levies and compensation scheme of last resort contributions, this would create an uneven playing field and potentially lay the foundations for another royal commission.”

The group ultimately said that advisers should be able to deliver advice “without being bound to existing rigid compliance requirements that offer little value to consumers”.

Touching on other issues in the exposure draft, the IFPA noted the challenge of moving forward with the changes proposed when NCAs and the best interests duty (BID) were both left out of this round of legislation, an omission that has also been widely criticised.

“Without clarity on how the revised BID will operate – especially its interaction with advice documentation requirements – makes it challenging to provide an informed response and assess the practicality of the proposed changes,” the submission said.

Issues with intra-fund advice

The group also raised concerns about the proposition that superannuation funds would be able to collectively charge members for advice, explaining that this not only encroaches on the “fee for no service” issues of the past, but the scope of advice may also cause confusion among those who choose to utilise the service.

Although considerable guardrails have been suggested, IFPA argued that because super funds will be able to consider factors outside members’ involvement in the fund, some may get the impression that they are receiving comprehensive financial advice while only being advised on matters regarding their interest in the fund.

“These broader elements may be relevant to the context of superannuation advice but their inclusion within a collectively charged model creates risks,” it said.

“Specifically, it creates the impression that members are receiving full personal or holistic financial advice. This blurs the line between intra-fund advice and comprehensive personal advice.

“This is a problem when members believe they are being offered a wide-ranging service when in fact, it is limited to the fund’s own products and options.”

To combat these issues, the group recommended a “fee-for-service” model be introduced, meaning that only those who engage the service will pay for it. Furthermore, it said that clear disclosures should be made to inform users of the limitations of the advice provided.