DBFO tranche 2 falls well short – TAA

The Government’s exposure draft of the second tranche DBFO legislation do little to change to simplify the law or reduce red tape while the introduction of new penalties for both trustees and advisers will act as a further disincentive to change, according to The Advisers Association (TAA).

In a submission filed with Treasury responding to the exposure draft, the TAA’s chief executive, Neil Macdonald also made clear that many of the measures being proposed to reduce the cost of advice would not work without a commensurate change of approach on the part of the Australian Securities and Investments Commission (ASIC).

“Compliance requirements being maintained on the file, and not needing to provide all documents to a client unless requested, may seem like a win,” the TAA response said. “However, in practice the adviser’s regulatory obligations remain the same and they will still have to collate all the information and documents and retain them on the file resulting in little, if any, cost or efficiency savings.”

“In fact, there will be additional costs incurred, for little benefit, by practices and licensees having to change advice policies, processes and systems e.g. all current references to SOAs and that process would need to be found, reviewed and replaced with reference to the new CAR processes, templates, file record policies, etc,” it said.

“We were hoping for better recognition of professional judgement, less prescriptive requirements, changes to Standard 6, etc, as a package that could be quickly and efficiently implemented. We are concerned with the interplay between the prescriptive list of requirements to be included in a CAR, the clients desire to have more personalised and scoped advice relevant to their particular situation, which would result in a better client experience and advice documentation aligned with the complexity of the advice and the client’s needs and level of knowledge.”

The response said the TAA supports the proposed move to record keeping requirements being incorporated into the Corporations Act, instead of in ASIC Corporations (Record-Keeping Requirements for Australian Financial Services Licensees when Giving Personal Advice) Instrument 2024/508.

“This is a positive, but small, step towards having all the relevant legislation simplified and consolidated into one place as recommended by the Australian Law Reform Commission Inquiry into the legislative framework for corporations and financial services regulation.  However, we do not support the introduction of additional onerous civil penalty obligations to maintain records, which is an unnecessary cost and regulatory impost on financial advisers and licensees.

“In previous submissions and consultation, we have advocated for a less prescriptive approach to the advice documents and a greater reliance on professional judgement, especially for simple advice, in line with Michelle Levy’s recommendations.  We also recognised that unless ASIC was seen to be changing their approach to supervision and monitoring the sector e.g. to reviewing files and imposing severe sanctions and penalties for relatively minor breaches, etc., the risk is licensees will carry on with the more complex, but perceived safer option of documenting everything and providing it to the client, thereby negating any of the benefits of the proposed changes.”

“In conclusion, our members’ assessment of the draft legislation is that the proposed changes in this tranche do little to simplify the law or reduce red tape and the introduction of new penalties for both Trustees and advisers is a further disincentive to change.  They are therefore unlikely to make advice more easily accessible or affordable without the proposed changes that may come with the next tranche of draft legislation,” the TAA response said.