Draft law on first tranche of adviser reforms released

Among the recommendations that have been included in the draft legislation are:

• Recommendation 7 – Clarifying the legal basis for superannuation trustees paying a member’s financial advice fees from their superannuation account, and associated tax consequences.
• Recommendation 8 – Consolidating different ongoing fee consent documents into one simplified document.
• Recommendation 10 – Allowing more flexibility in how financial services guides are provided.
• Recommendations 13.1 to 13.5 – Clarifying that monetary or non-monetary benefits given by a client are not conflicted remuneration, along with the removal of consequential exceptions.
• Recommendations 13.7 to 13.9 – Strengthening transparency and protections for consumers by introducing written consent requirements for consumers before they purchase an insurance product that will result in a commission payment.

But while the initial draft legislation adopts around half of the recommendations of the Quality of Advice Review (QAR), noticeably absent are several anticipated changes, including recommendations initially grouped under the first stream of the government's QAR response back in June.

These include recommendation 5, proposing the elimination of safe harbour steps from the best interests duty, and recommendation 9, advocating for the substitution of the lengthy and legalistic statements of advice (SOAs) with a financial advice record for consumers that is more fit‑for‑purpose.

Another noticeable change is that recommendation 7 has been plucked from the second stream of the government’s QAR response – the expanding access to retirement income advice stream – and fast-tracked.

Absence of SOAs

Speaking at a media briefing on Monday afternoon, Mr Jones clarified that, regarding recommendations 5 and 9, the focus is on the "how" rather than the "if" and assured that policy directions would be outlined by the end of the year.

“There are a few things I’ve got to work through because the safe harbour has tentacles into other things,” the minister said.

“The statement of advice, they’re kind of related.”

The minister admitted that while he deliberated over whether to delay the first tranche of legislation to incorporate SOAs and safe harbour, ultimately, he opted not to impede the process.

“It’s just about being entirely pragmatic. What’s ready to go, let’s get it out, don’t hold it up,” he said.

Providing additional context regarding SOAs, the minister said that the consultations are “pretty much done”.

“We’re just working through some of the technical detail of it.”

While Minister Jones clarified that the exclusion of these recommendations from the first tranche of legislation would not delay their push through Parliament, he hinted that SOAs could now slot into stream two of the government’s legislative response to QAR.

“If anything, it might be the opportunity to accelerate some of the other stuff as well. For that stuff, it won’t delay. We’re always of the view that we’d get the draft legislation for stream one out this year and come back early next year with the draft legislation for stream two,” he said.

‘Pretty close’ on stream two

Touching on the inclusion of recommendation 7, Mr Jones explained that the legislation stipulates that funds will be allowed to pay a member’s financial advice fees from their superannuation account. It also clarifies the associated tax consequences for the funds.

On the remainder of the stream two recommendations, more specifically recommendation 6, which suggests superannuation funds should provide more retirement advice, Mr Jones cited ongoing efforts to consolidate diverse ideas into a unified legislative instrument.

“Everyone had a different idea about what they wanted funds to be able to do. So, three things, scope of advice, competence or skills or training and qualifications required to provide that advice, and then what is funded as part of the normal operations of the fund and what is individually charged. So, working through the details of those three things,” the minister said.

“From a policy point of view, I think we’re pretty close. I’ve got to get whole of government complying on those things.”

He confirmed that the government will announce its final position on the outstanding recommendations of the QAR before the end of the year, with further legislation to be released in 2024.

Tranche one to lower cost of advice

Ultimately, the first tranche of the legislation will benefit people who are individually advised, Mr Jones said.

“The overwhelming majority of this is about financial planners and the people who are individually advised. For their client group, there should be a capacity for them to produce advice more efficiently. If it’s more efficient, then there should be cost savings in that,” the minister said.

“Advisers have been saying for some time now ‘if you reduce the red tape, we’ll be able to provide more affordable services’. We’re going to reduce the red tape, over to you.”

The government has invited all interested parties to provide feedback on the draft legislation until 6 December.