In theory the FSG change, which is not obligatory, should reduce the administrative burden for advisers. However, consultant to the financial advisory industry, Ben Marshan, says FSGs can be a useful tool to put in front of the client and explain the services being provided.
“A lot of advisers haven’t really moved on this one yet,” says Marshan.
“They’ve probably got lots of FSGs printed out and handing it out is part of their process. Why change if you don’t have to?”
Another key Tranche 1 change, which kicked in 10 January 2025, is around ongoing fee arrangements. Before, advisers had to source client consent every year and provide an annual fee disclosure statement within tight timelines.
Now, consent can be provided in a single document annually and advisers have flexibility to solicit consent within a 150-day time period instead of meeting set requirements within 120 days.
“It’s probably one of the biggest red tape reductions and time savers in Tranche 1,” says IPA General Manager Advocacy and Emerging Policy Michael Davison.
“Advisers can reset their annual consent dates with clients to align them all, so they get all of them at the one time, instead of having to go and source consents throughout the year.”
Davison says Tranche 1 is a bunch of little tweaks and won’t move the bar on the accessibility and affordability of advice, two pillars of the Quality of Advice Review (QAR) on which the DBFO package is based.
“What we’re seeing is a watering down of the more contentious recommendations made in the QAR,” he says.
“The more substantial reforms, like simplifying statements of advice and reforming the best interests duty, are in Tranche 2.”
A waiting game for key reforms
In Tranche 2 draft legislation released by the Government mid-March, the Statement of Advice (SOA) reform has been replaced by the need to keep Client Advice Records (CAR).
A CAR is “a principles-based, technologically-neutral record that is in plain English and supports the client to make an informed decision about the advice,” the legislation reads. The CAR does not need to be given to the client and promised a big change from an SOA, which must be provided to the client and can be over 100 pages long.
However, Davison says the CAR requirements do not appear to be substantially different from the SOA requirements and are unlikely to make any material change to the cost of providing financial advice.
The other big potential change in Tranche 2, which the Government plans to add to the draft legislation, is simplifying the best interests duty. Currently, an exhaustive list of safe harbour provisions must be met by advisers to ensure they are acting in the best interests of their clients. Under the new proposal, the safe harbour provisions would fall away.
“It has the biggest potential to help financial advisers because a lot of the time and costs of the advice process is in the best interests duty and proving compliance with it,” Marshan says.
Marshan says both changes could reduce client administration hours by up to two thirds, enabling advisers to increase client volume and profitability. But he does not expect advisers to adjust their fees, as fees are currently in the ‘reasonable’ range and many advisers will opt to increase their low margins rather than pass on savings to the client.
One further Tranche 2 addition that could disrupt market affordability is the proposal for a new class of adviser (NCA). Under the proposal, an NCA will provide simple advice around everyday financial products, like super and term deposits (but not SMSFs), without having to satisfy all of the onerous requirements placed on advisers.
In addition, a diploma in financial planning could be all that is required for a NCA to get up and running. Currently, advisers must have an approved degree in financial planning.
The NCA proposal has wide industry backing, and Davison and Marshan both view it as a positive step.
“NCA is going to be the best thing for the profession, because you’re going to have this natural funnel of people who can get in quick, get experience and skills providing advice to clients, do it in a safe way, and help a lot of consumers,” says Marshan.
Could accounting firms bring NCAs in-house to offer simple advice to clients? Marshan says it is possible.
“But you’ve probably got to have enough clients seeking that kind of simple advice to justify the cost of bringing a NCA on.”
The Government is seeking feedback on initial Tranche 2 draft legislation by 2 May.
Other Tranche 1 changes
Conflicted remuneration: from 10 July 2024, advisers must disclose fees or commissions they receive from products to their clients.
Deduction of adviser fees from a super account: From 10 January 2025, any adviser fees relating to superannuation can be charged to a client’s superannuation account provided it is personal advice.
Consent for insurance commissions: From 9 July 2025, if an adviser is offered a commission from an insurance provider, the adviser needs the client’s consent before accepting the commission.
Learn more about the IPA’s advocacy on DBFO here.
