Navigating the Future: Unveiling Australia's Financial Reforms for 2024

The Government has announced a new reform package aimed at closing the gap between the five million Australians approaching retirement and the sixteen thousand advisers specialising in financial advice. In the reform package announcement, Assistant Treasurer and Minister for Financial Services, Stephen Jones, acknowledged that while many Australians can’t access affordable advice, this gap has largely been filled by ‘fin-fluencers’ on social media platforms such as TikTok and Reddit – at best, exposing consumers to unregulated advice, and at worst, to scammers.

In an effort to reduce the exposure to risk and increase the accessibility of financial advice for consumers, the reform package will expand the supply of advice by creating a new class of advisers who will deliver simple, high quality advice in a safe and regulated environment. 

Whilst the legislation underpinning the reforms is yet to be developed, the announcement provides a strong indication of what that legislation will be looking to achieve. This article sets out the reform objectives and considers what changes may be in the pipeline for financial institutions. 

Background 

On 7 December 2023, the Albanese Government unveiled its final response to the Quality of Advice Review, as part of its broader reform package: ‘Delivering Better Financial Outcomes’ (Reform Package). 

The Reform Package was introduced in response to the Quality of Advice Review which recognised that complex regulatory frameworks governing the provision of financial advice, need to be simplified in order to obtain better financial outcomes for everyday Australians. The Government announced the first tranche of reforms on 13 June 2023, and more recently, on 7 December 2023, finalised its response with the announcement of a second tranche (New Reforms). 

With many Australians approaching the retirement age and considering their financial arrangements, the Government’s most recent response acknowledged that reliable and affordable financial advice is often difficult to find. This gap, combined with the increasing popularity and accessibility of social media platforms, has meant that many Australians are seeking their own financial advice via unregulated channels such as Tik-Tok and Reddit. Relying on advice provided via these platforms places consumers at risk of receiving inaccurate financial advice and increases their exposure to scammers. 

So what is changing?

The New Reforms build on the Government’s announcement from 13 June 2023 as part of the broader Reform Package. The New Reforms aim to introduce the following measures in order to limit consumers’ reliance on unregulated channels and achieve greater financial outcomes. 

1.Introduce a new class of financial advisers 

In an effort to reduce exposure to risk and improve the accessibility of quality financial advice, the New Reforms aim to expand the pool of advisers by bringing superannuation funds, banks, insurers and other financial institutions into the mix. A new class of advisers, will be created to provide free, personalised advice on simple matters, in an effort to increase the volume of advice being provided while still maintaining the necessary safeguards.

The new class of ‘qualified advisers’ will consist of employees of licensed financial institutions, including banks, insurers and super funds, provided they have met the necessary education standards, which are expected to be lower than that currently required for professional advisors. 
Additional guardrails will also be introduced to ensure there are robust consumer protections in place for the new class of advice provider, including additional obligations on Australian Financial Services Licensees. 

2.    Modernise the best interests duty

The New Reforms will introduce a modernised and flexible best interests duty which will apply to all financial advice providers. The updated duty is intended to ensure the provision of high quality advice that meets consumers’ needs. 

While the existing obligations to act in the best interest of the client will remain central to the New Reforms, the updated standard will provide clearer legislative support for scaled or limited scope advice where this meets the client’s objectives and needs, and for advice where the advice provider has limited, but relevant, information.
The requirement to provide appropriate advice will be retained, meaning that all advice must be appropriate for the particular client and adapted to their circumstances. 

3.    Ensure customers receive useful financial advice

As part of the New Reforms, statements of advice will be replaced with a principles-based advice record which outlines the subject matter and scope, advice, reasons for advice, the cost of the advice and/or benefits received by the adviser. The rationale is to replace the existing statements of advice with a more fit-for-purpose document allowing consumers to make informed decisions based on helpful advice.  

4.    Expand superannuation advice

Given the unique obligations currently imposed on superannuation funds and the need to drive engagement with its members, the Government will introduce a comprehensive framework for super advice by:

• legislating consistent rules on what advice topics can be paid for via super. The same list of advice topics will apply to collectively charged advice, and advice that is charged direct to the individual member’s super account;
• allowing super funds to consider a broader range of member’s personal and household circumstances such as debt, spouse’s income, or age pension eligibility; and
• supporting increased member engagement at key decision points in the retirement income journey by providing super funds with legal certainty to provide members with personalised ‘nudges’, such as prompting members approaching retirement to consider options for how they may wish to drawdown on their super.

What does this mean for financial institutions?

While the legislation implementing the New Reforms and the Reform Package more broadly, has not yet been developed, the Government has announced that the New Reforms will apply across all financial institutions with each institution being responsible for the advice provided by its employees. 

The Government will consult with key stakeholders over the coming months with a view to provide the draft legislation to Parliament for consideration before the end of 2024. 

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Commercial team.

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