Introduction
I would like to acknowledge the Ngunnawal and Ngambri people as the traditional custodians of the land we are meeting on.
I pay my respects to the Elders past and present, and acknowledge any First Nations Australians in attendance today.
A good financial sector connects consumers to investments, insurance and credit that meets their needs and interests.
However, when Australians cannot access the advice and information that they need and want, this is a failure of the system.
And sadly, that is the experience of too many consumers looking for advice today.
Now, to be clear, Australians must be protected from bad advice, bad marketing and dud products.
And this has been the objective of much of the necessary change to the industry over the past decade.
Financial advice has become subject to greater regulation to prevent the worst outcomes.
And to shift the advice industry away from being a salesforce and towards being a profession.
We are not going to reverse course and return to the bad days.
If the goal has been to protect Australians from bad advice, we have been pretty successful.
But in the process of protecting Australians from bad advice, we have also protected them from good advice.
Worse still, nature abhors a vacuum.
Which means that consumers fill this advice gap through other means.
Reddit. TikTok. YouTube.
At best, consumers are exposed to unregulated advice.
And scammers, at worst.
We know that investment scams are responsible for around 60 per cent of losses reported to Scamwatch.
This is only the reported figure and likely to be higher.
Simply put, the lack of access to quality advice can lead to consumer harm.
So we need to make it easy and safe for consumers to access high quality advice and information.
Roadmap of financial advice reforms
So earlier this year, I outlined the Government’s plan to reform financial advice to increase access and affordability.
A plan for which we are on time and on target.
A plan that is guided solely by what is best for Australian consumers.
To make sure the advice industry works for consumers and lifts the standard of living.
Which means delivering access to quality, helpful and safe financial advice and information.
Removing red tape that adds to the cost of advice, but provides no protection or benefit for consumers.
And ensuring Australians can access financial advice and information when they need it most.
To achieve this, we need legal change and cultural change.
And to recognise the limits of the current approach.
Because there are over five million Australians at or approaching retirement.
Not to mention the many others seeking help with other crucial financial decisions.
But there are only 16,000 professional advisers.
So yes, we absolutely need to increase the number of professional advisers.
But even a significant increase is not going to meet the needs of Australians looking for quality advice.
In one way, this is a problem of success.
Thanks to our world-class superannuation system, more workers are sharing in the prosperity of the nation.
With an average super balance of over $200,000, Australians are retiring with more wealth than ever before.
But an effective retirement system should support Australians to both grow and draw down on their superannuation in ways that improve their quality of life.
In this spirit, the Treasurer and I released a discussion paper earlier this week inviting input on how to improve the retirement phase.
We want to ensure that the superannuation system is as good at delivering income as it is at growing wealth.
So that superannuation provides the security and income Australians need as they live longer and healthier lives in retirement.
This will build upon the advice reforms I outline today.
Because advice is integral to ensuring that members get the most out of their superannuation.
But the Retirement Income Review found that only 26 per cent of individuals approaching retirement seek financial advice.
Despite the fact that, for many, their advice needs are simple and one-off.
In fact, a comprehensive advice plan is likely to be both unnecessary and potentially even unhelpful.
So we need a shift.
We must give consumers what they actually need.
Because it is good for everyone if more Australians are making better-informed financial decisions.
And it will lead to a meaningful improvement in living standards for millions.
Addressing the costly processes of advice
It is a failure of the system that quality, simple personal advice is almost impossible to get.
And comprehensive advice is out of reach for most.
Stakeholders identify the process-focussed approach to satisfying the safe harbour steps of the best interests duty as the driver of these outcomes.
These steps have made advice more expensive through a combination of law, regulatory approach, and a risk averse industry.
Too often, these steps are followed in the best interests of everyone but the client.
Coupled with unreadable and unhelpful statements of advice, it is clear that significant reform is needed to support consumers.
So today I am announcing that the Government will modernise the best interests duty.
This will require advisers to continue to focus on what is best for their clients.
It will maintain the requirement for advisers to give priority to their client’s interests where there may be a conflict.
And it will retain the necessity for advice to be appropriate and fit-for-purpose.
However, the safe harbour steps will be removed.
We will also clarify that advice can cover only one or a few topics where this meets the client’s objectives and needs.
And that advice can be based on relevant information without the need to complete an exhaustive fact-find in every situation.
This will enable advice to be relevant and helpful, while upholding quality standards.
These changes will be complemented by replacing Statements of Advice with an advice record that provides clients with helpful information in plain English.
The principles that will form this new record are as follows:
The record must be clear, concise and effective and actually help the client make an informed decision about the advice they have received.
And it must address the following matters:
The subject matter.
The advice – such as product recommendations and strategies.
The reasons for the advice – such as the information about the client that the adviser considered.
And the cost of the advice to the client and any benefits received by the adviser.
Record-keeping obligations will also be updated to ensure key information that informs the advice is appropriately recorded.
Without burdening the advice record with information that makes it harder for the client to understand and make an informed decision about the advice.
A simpler approach that will deliver consumers information that is helpful.
Improving the value and quality of advice.
While reducing its cost.
Addressing the lack of advice channels
All of this will reduce the red tape burden on advisers.
However, it will not expand the supply of advice that is needed.
Professional advisers do a good job for their clients – many of whom want and need complex financial advice.
And this business model and role for professional advisers will continue and expand.
But they cannot scale up their business in a way that reaches the millions who could benefit from improved access to quality advice.
With this goal, the Government will expand the role of superannuation funds in providing advice to their members.
We have engaged in deep and constructive consultation with a broad cross-section of stakeholders to settle on the model for this expansion.
And I want to thank many of you here in attendance for your thoughtful engagement in that process.
That consultation has helped us avoid many unnecessary pitfalls that were not dealt with in previous reviews.
We have landed an approach that is broadly supported by consumer groups and industry stakeholders.
Support that was not always guaranteed.
Today, I can also go further and announce that this model will apply across all financial institutions.
Superannuation funds.
Life and general insurers.
Banks.
This is a pragmatic step that will expand the provision of personal advice to improve consumer outcomes.
Under our model, there will be a new class of financial advisers who will fill the advice gap by advising on less complex matters.
It is expected that this new class – to be termed ‘qualified advisers’ – will generally be employees of licensed financial institutions.
I have often said that the nut to crack on this was to nail the scope, charging and qualifications of this cohort.
On scope, qualified advisers will focus on providing simple financial advice.
On fees, qualified advisers will be prohibited from charging a fee and from receiving a commission, which will help to restrict their advice to simple advice.
And on qualifications, as the name suggests, they will be required to meet a Government-mandated education standard.
The exact level of education will be determined in time, but a minimum standard of a diploma may be the right balance to be less onerous than the requirements for professional advisers.
This will enable institutions to invest in these individuals to meet the scale that Australians need.
Enabling digital advice
Scale will also be met by emerging digital advice technologies.
The benefit of digital advice is that it enables the client to receive helpful advice at a time and place that suits the client.
In the superannuation context, I envisage that funds will look at embedding these digital tools into their advice services.
This could enable a member to assess where they are and where they want to be.
And then develop a contribution, investment and drawdown strategy that delivers them the income they want in retirement.
However, many consumers still want human support through this process.
To date, this has limited the potential of digital advice given this would require a professional adviser to provide this support.
Our approach unlocks the potential of digital advice by allowing qualified advisers to fill this role.
Applying the best interests duty across all advisers
While this new class of adviser was a recommendation of the Quality of Advice Review, our model has important safeguards that will support quality while maintaining affordability.
First, qualified advisers will be required to meet a mandated education standard.
Second, the licensee will be wholly responsible for the advice provided by their employees with new obligations on the licensee.
Finally, and perhaps most importantly, all advice across all sectors will be subject to the new modernised best interests duty regardless of its source.
Professional advisers.
Qualified advisers.
Digital advice.
There can be no doubt. In the event of a conflict of interest, advisers will need to prioritise the interests of the client.
Not themselves. And not their employer.
Which means consumers will have confidence that all personal financial advice they receive will be held to the same duty.
Some have suggested that the only way forward is to allow personal advice to be given that is not subject to the best interests duty.
We disagree.
Because Australians deserve the best, not just good.
Improving the service of superannuation
We have developed this model to be neutral across the whole financial sector.
However, I don’t expect every business, or even every sector, to respond the same way.
The response will largely be dictated by the demand of consumers.
But in the superannuation sector, I do expect a significant response.
For one, it will greatly help them meet their obligations under the Retirement Income Covenant.
Under the Covenant, funds are required to know their members and develop a strategy that improves their retirement outcomes.
This reform package will significantly advance their ability to meet this obligation.
But secondly, I have put superannuation funds on notice to improve their member service.
For both reasons, I expect superannuation funds to provide more information and advice.
However, funds have a unique obligation to meet the sole purpose test.
That is, a fund is to be maintained solely for the purpose of providing retirement benefits to members.
Which leaves some funds uncertain about how advice can be paid for.
So I want to provide certainty that charging members for retirement income advice from their superannuation satisfies this obligation.
This will take the form of the Government clarifying a list of advice topics that are appropriate to be charged to a member’s superannuation.
The topic list will be broad.
It will include investment decisions –
Such as the appropriate investment options within a fund and contributions strategies.
It will include delivering retirement income –
Such as retirement projections, a drawdown strategy and recommendations about retirement products.
And it will allow the fund to consider broader circumstances for both the member and their household –
Such as their debt and assets, their partner’s situation, and eligibility for the Age Pension and other government support.
This will ensure that the advice is quality, helpful, and safe.
Nudges in superannuation
We don’t just want to make advice more accessible.
We want to actively encourage members to seek it.
However, we know that the system has been designed to make it easy for members to accumulate wealth with limited engagement.
And it is difficult for funds to engage their members at scale in a meaningful way under the current rules.
But we want to lift engagement.
So we will create a specific permission within the current general advice framework to allow superannuation funds to prompt or ‘nudge’ members.
This will allow funds to be proactive and encourage members to think about their financial situation.
And to seek advice at important decision-points that they might otherwise have missed.
For example, this could be as simple as sending personalised messages to a member at important life stages.
A person at the age of 55 might be shown their projected balance and retirement income.
To get them to consider seeking advice on whether their contributions strategy will meet their retirement objectives.
A person at preservation age might be informed about the benefits of switching to the tax-free pension phase.
Or how their drawdown phase might look.
That is, millions of members will receive helpful messages with relevant and timely information.
And will ensure that the expanded advice services of funds are accessible to all members, not just the most engaged.
Which could lead to millions of members seeking and receiving advice that, today, they do not receive.
Conclusion
And this is good for consumers.
Because quality financial advice can make a meaningful improvement to living standards.
And that is why we are determined to reform financial advice, with more legislation to come in 2024.
We haven’t forgotten the past, or the journey of financial advice reform.
But we are also not held back by it.
Our approach to financial advice is that it must be safe, helpful and quality.
Safe to ensure that we protect Australians from bad advice.
Helpful to ensure that it is usable by the client.
And quality to ensure it delivers the best outcomes for Australians.
