When Stephen Jones, the Assistant Treasurer and Minister for Financial Services, asked attendees at the latest Conexus Financial event, “Who is awaiting the results [of the Quality of Advice Review] to decide what their business should do?”, more than half of the 200+ guests raised their hands.
Minister Jones recently described the financial services industry as a “hot mess” – largely referring to the quality, availability and cost of financial advice. It was assessments such as this which led to Quality of Advice Review chairwoman Michelle Levy’s latest report, containing a series of recommendations to improve the financial advice industry for consumers and advisers.
While the minister didn’t provide the event with any concrete responses to these specific recommendations, he did deliver some key insights that may indicate the government’s priorities (and where it may make the first legislative changes).
Here are five takeaways from our attendance at Stephen Jones’ response to the Quality of Advice Review in Sydney, presented by Conexus Financial.
1. Putting the consumer first
The overarching goal of the Quality of Advice Review is to reinforce that consumers have a right to good, affordable financial advice. The latest recommendations are about ensuring that advisers work in the best interest of their customers.
Minister Jones reaffirmed that consumers need to be protected from bad advice – particularly those who don’t understand the sophisticated financial products being offered to them. Legislation has been put into place to achieve this, and while it has been relatively effective in preventing bad advice, the minister said the regulation has gone too far, now creating barriers to Australians receiving good advice.
He pointed out that providing quality advice at a reasonable price is not just recommended, but is an obligation for the financial services industry.
2. Addressing the adviser-retiree ratio
Australians are living longer and retiring with more money than ever before, and they need good advice on how to use it wisely. The problem with this, Minister Jones said, is that there aren’t enough financial advisers to ensure all of these Australians receive the advice they need.
There are five million Australians approaching or in retirement. That equates to more than 300 potential clients in this cohort alone for each of the nation’s 16,000 active financial advisers.
Minister Jones also pointed out that thousands of super accounts belonging to people over the age of 65 are still in the accumulation phase, rather than the withdrawal phase. These accounts are being taxed at 15%, when their tax rate should be zero. This is an example of how, without access to proper financial advice, retired Australians are losing thousands of dollars to super taxation.
While the minister didn’t outline any strategies for mitigating this problem, he did make it clear that it was an issue he and the government were aware of and concerned about.
3. Homogenisation of advice providers
Minister Jones firmly believes that greater regulation is needed to homogenise how financial advice is given.
Currently, financial service businesses – from advisers to accountants to super consultants – are offering advice through different, often poorly regulated avenues. This can include offering advice services as an ‘extra’ or through third-party agreements that aren’t properly certified.
By homogenising how advice can be delivered, Minister Jones believes the government can establish a common structure that all financial services businesses must follow to ensure they provide quality, properly registered advice.
4. Digital advice
The subject of digital advice was raised multiple times in the Q&A section of the event, indicating that it is a concern for the financial services industry.
Minister Jones was open to the idea of advice being provided online, saying it certainly “has a place”. However, he reminded attendees that no one has yet been able to do so as a standalone offering, instead only ever offering digital advice as an extra service.
While he believes that digital advice could improve access and affordability, Minister Jones doesn’t yet see it as a major growth area. People, particularly those in the retirement phase, are reluctant to move significant sums of money based on digital advice, instead feeling more comfortable with face-to-face consultations when making major financial decisions.
The burning question on the minds of everyone in the room was, “When will these recommendations be put into practice?” Unfortunately for attendees, Minister Jones’ response was far from concrete. Despite the fact that many financial services businesses will be affected by legislative actions that will follow the Quality of Advice Review, the estimated timeline of when these will come into effect was vague.
Minister Jones stated that some recommendations were “no-brainers” that could be implemented quickly and without legislative action, while those that needed to be proposed to Cabinet may not be assessed until at least 2024. These “no-brainers” weren’t specifically listed, so again, it makes preparing for their impact difficult.
The minister did, however, push the point that he recognises the importance of these changes and will bring them into effect as soon as possible.