Draft advice legislation a FoFA rollback
Anyone who has been involved in the financial advice sector for the past 20 years will see the irony in the fact that the Government’s approach contained in its first tranche exposure draft legislation around the Quality of Advice Review (QAR) simply rolls back the efforts of earlier Labor Governments.
Financial advisers who were practicing ahead of the 2012 pursuit of the Future of Financial Advice legislation will recognise that, broken down, the new legislative package being proposed by the Government, the Treasury Laws Amendment (2024 Measures No 1) Bill 2024, rolls back elements such as those around conflicted remuneration and fee disclosure.
It is worth remembering what the FoFA legislation imposed on financial advisers. It:
- introduced heightened obligations on advisers to act in the best interests of retail clients and place the interests of clients ahead of their own (“Best Interests Duty”);
- imposed a ban on conflicted remuneration structures (for example, volume based commission payments);
- implemented requirements for advisers to renew ongoing fee arrangements with clients every 2 years (the opt in requirement); and
- imposed an obligation on advisers to send annual fee disclosure statements to clients.
If Michelle Levy’s Quality of Advice Review (QAR) did one thing, it identified the degree to which the legislation and regulation around financial advice had been made too onerous over the past two decades, particularly as a result of FoFA.
Thus, the Assistant Treasurer and Minister for Financial Services, Stephen Jones has rightly admitted that the exposure draft legislation delivers half of Levy’s QAR recommendations.
Indeed, he might have added that the draft legislation delivers on the easier half of the QAR recommendations – the easy wins.
Jones said the draft legislation in the first tranche adopts half of the recommendations of the Quality of Advice Review, including:
- 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.
The reality, of course, is that there is a long way to go before the exposure draft is taken into the Parliament and NSW Liberal Senator, Andrew Bragg, is right to suggest that the legislation may not even be debated in the Parliament before the next Federal Election.
“Releasing a draft bill at this stage of the term means there will likely be no substantive financial advice reform in the life of this Parliament,” Bragg said.