Earlier this week (29 August), Treasury released a proposals paper for the Quality of Advice Review, which set out 12 potential proposals for reform.
The proposals include refocusing regulation on a broad definition of “personal advice” and replacing the best interests duty with an obligation to provide “good advice”.
They also remove much of the mandatory paperwork, with no requirement for fee disclosure statements and records of advice supplied on request.
Speaking to SMSF Adviser, Hejaz Financial Services chief operating officer Muzzammil Dhedhy said the proposed changes to advice appear quite promising.
“Over the past 10 years there’s been a level of restrictiveness applied to financial advisers and financial advice practices overall that have made it very difficult and very costly to manage a financial planning practice and provide good outcomes for clients,” said Mr Dhedhy.
“These proposals take it back to a more balanced approach. With that being said, it is an iterative process.”
Mr Dhedhy noted that the release of the proposals paper is only the initial phase in the process of applying changes to advice regulation.
“It will be interesting to see how many of these changes are actually passed and how they will be applied,” he said.
“The onus is still on licensees in terms of how they will apply this to their advisers, but I dare say its a welcome relief from the overly restrictive nature of the way the industry has been working.”
Mr Dhedhy said he feels a lot of the more restrictive requirements introduced for advisers were implemented to compensate for the fact there were limited barriers to entry for advisers.
“You could simply acquire a diploma in financial planning and become a financial planner,” he stated.
“[However], we’ve now had the FASEA requirements, the minimum education requirements, and a professional year on top of that so the advisers coming through the ranks are much more professional.”
He also expects the proposals to reduce some of the documentation and fact finding involved in the advice process will help improve access to affordable advice.
“There is a growing segment of the population today that require financial advice but see the cost and rigours involved in that process [as a barrier]. There are comprehensive fact finds, meeting upon meeting, lengthy advice documents, and lengthy review documents.
“It’s quite an ordeal just to get some clarification around how much they should contribute and when they should contribute and what the implications would be — things which would otherwise seem pretty simple and straightforward to understand.”
The Financial Services Council has also welcomed the proposals put forward in the consultation paper, with chief executive Blake Briggs stating that the proposals “outline a sensible roadmap for delivering affordable and accessible financial advice”.
“Financial advice is weighed down by layers of red tape that has pushed the cost of advice to more than $5000, putting it out of reach for most Australians.
“The Review has listened to stakeholders and got the balance right, by detailing a framework that allows consumers to get advice on the topics they need, with all the necessary consumer protections, and through a channel that suits them, rather than a one-size-fits-all model.
Mr Briggs said the advice industry can now have hope that policymakers are listening to their concerns and will embrace the opportunity offered through the proposals paper to open new affordable advice pathways for consumers.
“The onus is on industry, consumer groups and Government to support the evolution of the simpler regulatory framework while maintaining necessary consumer protections.”
“Mr Dhedhy said he feels a lot of the more restrictive requirements introduced for advisers were implemented to compensate for the fact there were limited barriers to entry for advisers.” I think this is a great call out. The industry failed to demonstrate the ability to exercise appropriate professional judgement and therefore got saddled with layer upon layer of regs. We needed a Code of Ethics as the first step to lift the mind-set but agree that over time, the education uplift will be the real game changer. Having said that, just because you belong to a profession doesn’t mean you always supplant self interest over the client’s interest. The need for self awareness should be at the top of a daily to do list.