How SMSFs will benefit from advice changes

Author: Richard Webb 

The government's implementation of recommendations from Michelle Levy’s review of the Quality of Financial Advice brings positive news for trustees of self-managed superannuation funds. These reforms prioritise the removal of unnecessary red tape with the potential to streamline processes, ultimately benefiting SMSF trustees. The changes are aimed at improving financial advice regulations. Importantly, this will contribute to a more efficient and cost-effective environment for managing SMSFs.

The government has prioritised removing regulatory red tape that adds to the cost of advice without benefiting consumers. SMSF trustees, already struggling to obtain good advice, will welcome these changes. 

The elimination of superfluous and potentially detrimental steps in the provision of advice will streamline the adviser’s best interest duty. This includes "safe harbour" provisions, which were originally designed to protect financial advisers. These changes will allow financial advisers to better focus on client-centred advice, allowing trustees to see how to better meet their fund’s objectives and concentrate on managing their members’ retirement savings.

The replacement of Statements of Advice (SoA) with a more fit-for-purpose advice record is a much-needed change. SoAs are often lengthy and complex documents, making them less accessible and user-friendly. With the introduction of a more practical advice record, trustees are expected to benefit from clearer and concise advice. This will enable them to spend time discussing the recommendations provided by financial advisers with their adviser, ensuring better understanding of the advice provided.

A number of other measures have also been prioritised to reduce the burden of paperwork required from financial advisers and simplify processes for SMSF trustees. One such measure is the consolidation of ongoing fee renewal and consent requirements into a single form, eliminating the need for a fee disclosure statement. Additionally, there is to be greater flexibility in meeting financial service guide (FSG) requirements. Standardised consumer consent requirements in respect of wholesale and sophisticated clients will bring clarity and consistency to the financial product landscape. Further, simplification and removal of certain exemptions to the ban on conflicted remuneration stands to benefit trustees through consistency and clarity. Lastly, the standardised consumer consent requirements for insurance commissions enhance transparency and protection, ensuring that trustees are fully informed.

In addition to these immediate steps, the government has announced longer-term plans that align with Levy's recommendations in full. These plans involve extensive consultation with industry and consumer stakeholders to explore the expansion of advice provided by other institutions, including APRA-regulated superannuation funds. The key areas to be addressed include broadening the definition of personal advice, removing the general advice warning, allowing non-relevant providers to offer personal advice, introducing a good advice duty and amending the Design and Distribution Obligations.

The consultation process aims to finalise the implementation details for a number of recommendations. This includes the replacement for SoAs, the five, the adviser’s best interests duty replaced with a true fiduciary duty and review of the financial adviser code of ethics. It also includes expanding access to affordable retirement advice. The government intends to evaluate these proposals through trials involving various advice models, such as digital advice, while considering practical policy design and implementation. Consumer protection expectations will also be addressed.

The introduction of a duty to provide "good" advice, rather than solely focusing on a best financial interests duty, is particularly significant for trustees. This requirement, applicable to all interactions between financial professionals and their clients, will have an impact on those providing retail financial services. The concept of "good" advice entails wholly or partly personalised advice that, at the time it is given, is suitable for the intended purpose. This takes into account the client's needs or the potential usefulness of the advice from the provider's perspective. Overall, this shift towards a "good" advice duty holds the potential to enhance the quality of all advice provided.

The implementation of recommendations from the Quality of Advice Review brings potentially positive changes. However, for SMSF trustees to maximise the benefit the government will have to consider the full suite of recommendations and think differently about who can provide financial advice and how that is advice is provided. Innovative thinking is needed while ensuring consistent consumer protections are maintained.