AMA: I'm Phil Anderson, GM Policy, Advocacy & Standards at FAAA, Ask Me Anything!

Thanks Mat. Yes, whilst getting rid of FDSs will be a big outcome for some advisers (those who have not moved to 12 month fixed term agreements), the bigger gains are likely to be through Tranche 2 of the DBFO. There wasn’t much in Tranche 1 for risk advisers, other than the new client consent requirement and confirmation of the retention of commissions (although at the current levels). We see the rationalisation of the Best Interests Duty, removal of the safe harbour and the rationalisation of advice documents as the most important reforms.

There is still a long way to go in this process. I suspect that there is still some work (consultation) that needs to be done before the draft legislation is released and then there is still a period of time between that point and the tabling of the legislation in the Parliament. We remain in regular contact with Treasury and the Minister’s office.

In the Minister’s media release in response to the passing of DBFO Tranche 1 he said “The second tranche of reforms will further increase access and affordability of financial advice and will be developed over the second half of the year”. We obviously want it to happen as soon as possible, and with an election expected in the first half of 2025, we would like it to be fully resolved before the election. Unfortunately, there are no guarantees with this.

I am not particularly concerned by a change of Government, as the Opposition have said that they will fully implement the Michelle Levy QAR recommendations, so they will still drive change. The issue might be that there is a delay for them to transition into the driving seat. Thus, given the election is still as much as 9 months away, and a change of Government is not likely to deliver a significantly different outcome, we will simply focus on driving for change and working with whomever is in Government.

Hi Phil, what are you views with regards to Records of Advice (ROAs) going forward. If the SOAs are going to be reduced down to a much smaller document, will ROAs go completely or will they still exist? They are another document that takes up time and adds little (no) value to the Adviser / Client relationship.

Thanks Anne. We have been engaged in discussions with super funds and insurers about the ‘QA’ option. I think they are open to the idea, however it is not yet clear on how this might work, so I assume that they are just at the thinking stage at this point.

Some people have expressed concerns about the banks getting back into financial advice. The big banks have been quite guarded about responding to this, and no doubt the memory of the Royal Commission is still fresh in their minds. The world has changed substantially since then, and most of them no longer have a wealth arm where they have products to distribute. I think for this reason, they are less likely to rush back into advice. However it is difficult to predict what will happen in the long term.

Michelle Levy recommended that it would not be possible to charge for advice services provided by a QA. This would mean that it largely only made sense for product provider entities with product margins available to pay for them. We have argued that it should be possible for advice practices to employ them and that their costs should be able to be covered by fees that clients pay the practice. This outcome is important to ensure that the playing field is as level as possible.

Thanks Darren. Yes this regulatory change process is slow and frustrating for those watching from the outside. I have been involved in regulatory change for over a decade and know that it takes time, and also appreciate that it is important to get it right the first time. It was nonetheless important to get the DBFO Tranche 1 changes passed, and this should give us confidence that the Tranche 2 reforms will be delivered. I like to remain optimistic about the future, and hopefully that is how it plays out.

In terms of business improvement, I think that regulatory change is critically important, however there is much more that can be done to deliver greater efficiency.  The people that I talk to describe the huge difference between those practices who have good processes and those who don’t. So, I would like to say that regulatory change is not the only way to achieve real improvements. What practices need to be targeting doing is serving more clients with the same fixed cost base and reducing the cost of providing financial advice.

I think that there is an interesting debate underway as to whether there is a maximum number of clients that any one adviser can service. Some refer to the Dunbar principle which would suggest a limit of 150. Others suggest that with the benefit of technology, advisers should be able to service a lot more. This will be an interesting debate to watch play out.

I think the removal of FDSs, the rationalisation of the BID and removal of the safe harbour and the rationalisation of advice documents can deliver material improvements in efficiency. Along with technology and process improvements, I think these changes will be material.

In terms of timing, The ideal pathway would be for the legislation to be passed in early 2025, with a six to 12 month transition period.  So we might be looking at commencement in late 2025 or early 2026. Please don’t hold me to this timeline.

The FAAA has supported the idea of a new class of advisers from the outset of consultation on this, however subject to some very important pre-conditions. We certainly do not support the ‘qualified adviser’ term, which the Minister has previously committed to us will change. Otherwise, we want to ensure that the scope of QAs is limited to simple advice and the education standard is much higher. We are also looking for a level playing field between QAs and fully qualified advisers, which is important. That would need to address whether financial advice practices are allowed to appoint them and charge for the services that they provide.

This is a very important issue, which we will be closely tracking. We will not provide our support to this proposal until we are certain that our concerns have been addressed.

Thanks Fosca. The big win, although this is limited to those advisers who are on ongoing fee arrangements (which excludes those who have switched to 12 month fixed term agreements), is the removal of FDSs. I would suggest that those who are on 12 month fixed term agreements have reason to go back to ongoing fee arrangements to leverage the benefit of 150 days after the anniversary for clients to renew. They would no longer be bound by a requirement to get clients to renew before they get to the 12 month point. Another important win was the ability to move anniversary dates. I also think that we now have the chance to rationalise the fee consent process, via the development of a standard mandatory form. Ideally this will, before too long, become a digital process, where clients can approve an ongoing fee arrangement via clicking a button on an App on their phone.

There is merit in the ability to provide FSG information on websites, however I expect that licensees will be reasonably careful with the implementation of this.

There was nothing much of great interest in the Conflicted Remuneration changes and the client consent requirement for risk advisers, is really just locking into law something that is already a business practice. This is a once off consent and does not need to be provided to the life insurer.

Thanks Dela. I do think that the CSLR is another factor that could present an obstacle for new advisers coming into the advice profession. Who would want to be held financially responsible for poor advice that was provided by another adviser, even before you entered the advice profession. The CSLR levy, however is just one of a number of costs impacting financial advisers and it is likely to be less than the ASIC Funding Levy. There is a sector cap of $20m, above which the Minister must approve any special levy and where they have the power to allocate the additional levy to a broader range of sectors. We would hope that in any year where the financial advice profession hit that $20m threshold, that the Minister would make exactly this decision. In that case, based upon a total cost of $20m for the profession, the cost of the CSLR could be capped at around $1,300 per year per adviser in the worst case.

This is why we have to work so hard to encourage new entrants into this critically important profession. We all have a role to play in rebuilding the advice profession.

Incidentally, the FAAA is holding a webinar on Tuesday 6 August to hear from AFCA and the CSLR about how the CSLR will work. Please attend this if you would like to know more about the CSLR.

Thanks ShwetaM1. Most of the complaints related to financial advice go through the Internal Dispute Resolution (IDR) process and the External Dispute Resolution (EDR) process that is managed by AFCA. The AFCA rules do have time limitations, including that the complaint must be submitted “within six years of the date when the Complainant first became aware (or should reasonably have become aware) that they suffered the loss”. There is also a further time limit that is applied – “where prior to submitting the complaint to AFCA, the Complainant was given an IDR Response in relation to the complaint from the Financial Firm - within two years of the date of that IDR Response”. These limitations are sensible and do protect advisers from facing very old complaints.

It is however important to note that it relates to when the client became aware that the loss occurred.  It is possible that deficiencies in advice could result in losses arising some years later, so this is not the same as saying that there is a limitation of liability of six years from when the advice is provided.

Thanks ShwetaM1. Yes there is definitely a conflict of interest in financial institutions appointing QAs and providing advice on their products. Conflicts of interest exist everywhere. In some cases, they are impossible to accept, whilst in other cases they can be managed. Let’s hope that the supervision and surveillance of QAs, when they commence, and on an ongoing basis, will be sufficient to ensure that the worst of what has happened in the past can be avoided. I certainly hope so as our members do not want to suffer reputational damage as a result of mistakes made by QAs.

My view has always been that QAs would provide the type of advice that fully qualified advisers would not provide, in that it was simple advice and the potential fees meant that they were simply not attractive clients. In this way, we would be talking about completely different consumer segments. QAs might be a means of these people getting simple advice that could make a meaningful difference to them, that they would otherwise not be able to get.

You might notice that I am not using the term ‘Qualified Adviser’, but instead referring to them as QAs. We objected strongly when this term was floated in December 2023, and we received a commitment from the Minister before Christmas that another term would be found. He repeated that commitment in a recent podcast that he did with Professional Planner.