Following the release of the draft terms of reference in mid-December, last week, the government released the final terms of reference for the Quality of Advice Review and the appointment of Michelle Levy as the reviewer.
The final terms of the review, released late last week, will investigate whether there are opportunities to streamline and simplify regulatory compliance to reduce costs and duplication.
It will also assess how to improve the clarity and availability of documents provided to consumers and whether parts of the regulatory framework have created unintended consequences.
SMSF Association chief executive John Maroney said Ms Levy had worked closely with the superannuation industry for many years and was an excellent choice.
“A specialist in superannuation, life insurance, distribution and financial services law, Levy will bring the necessary expertise and experience to this critical issue of over-regulation that is confronting the financial advice industry,” said Mr Maroney.
Mr Maroney said the SMSF Association was “comfortable” with the terms of reference and it was important that they had retained a TPB recommendation about the scope of advice allowed by accountants.
Recommendation 7.2 of the review of the Tax Practitioners Board recommended that the government initiate a specific review of what advice accountants can and cannot give in respect of superannuation and which accountants that might apply to.
“Accountants can advise on all sorts of tax structures but not SMSFs because that becomes financial advice, which under current law they are not allowed to do,” Mr Maroney explained.
After years of continual regulatory change, Mr Maroney said the advice framework has become complex, convoluted and costly, so the review is both important and timely.
“Affordability and access to advice is a significant issue so it presents an opportunity to investigate how the regulatory framework can deliver better outcomes for consumers by simplifying and reducing the cost of regulatory compliance,” he stated.
Mr Maroney said the SMSF Association was concerned, however, that the December deadline meant the review might be rushed unless – as expected – the government gave it more time.
“We’d prefer she was given more time to do it – we think that’s likely to happen after the election,” he said.
The Institute of Public Accountants (IPA) was also pleased with the review terms and said there was a lot to be fixed in the financial advice sector after years of “significant changes”.
“Many consumers don’t have access to competent and affordable advice while at the same time there is an exodus of qualified advisers,” said Vicki Stylianou, IPA group executive advocacy and policy.
“Demand is increasing and supply is decreasing.”
However, Ms Stylianou said the review failed to address the appropriateness of the delineation between retail and wholesale clients, and related definitional changes.
While the terms of reference state the review will examine whether consent arrangements for sophisticated investors and wholesale clients are working effectively for the purposes of financial advice, it will not examine the definitions of “retail client”, “wholesale client”, and “sophisticated investor” and the relevant income and asset thresholds.
SMSF Association policy manager Tracey Scotchbrook previously told SMSF Adviser she was hoping the review would examine the definition of wholesale investor, as there was a lack of clarity around how these rules apply.
“The thresholds and the way that is assessed has been frozen in time, and it’s not really reflective of where we sit today. Somebody could be a home owner and not really have a lot of other assets, and could be classed as a wholesale investor, but should they be betting the house and taking the risks that they’re taking?” she stated.
Ms Scotchbrook noted that the SMSF Association receives a large number of inquiries from members around whether clients will meet the test and how it applies in the SMSF context.
“The worry is that with the complexity in the advice space, there may be a trend to classify certain clients as wholesale to alleviate the compliance complexity and burden,” she said.
Dr Jane Rennie of CPA Australia said that while the accounting body welcomes the review, it’s not comprehensive as it had hoped and called for.
“The timing of the review creates an opportunity to consider the impact of some of the Financial Services Royal Commission reforms. We’re disappointed that these are excluded in the terms of reference,” said Dr Rennie.
CPA Australia has concerns that it will result in more piecemeal measures and responses, she said.
“As we’ve seen before, this approach leads to unintended costs, further reducing access to affordable advice for consumers,” she warned.
“What we really need is an end-to-end review of the financial advice framework.”
The review will invite submissions from the public and consult with stakeholders, including consumers, industry, and regulators.
A report will be provided to the government by 16 December this year.
