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ASFA pushes for clarity on best interests duty and NCA framework
The best interests duty and new class of adviser didn't make the cut for the pre-election DBFO draft bill; however, ASFA has used its submission to outline what it wants to see from the final package.
In a somewhat ironic portion of the Association of Superannuation Funds of Australia’s submission on the draft Delivering Better Financial Outcomes bill, has argued for clear guidance around scoping of advice under a modernised best interests duty.
This particular part of the government’s long-gestating financial advice reforms is, as ASFA conceded, “outside the scope of this draft legislation”.
Despite this, the super fund association recommended that “for the purposes of what is considered a material circumstance regarding scaling, it should be clarified that this should only include ‘circumstances which are material to the scope of the advice’”.
While we understand it is outside the scope of this draft legislation, ASFA strongly supports the ‘scoping’ and ‘scaling’ of advice under the modernised best interest duty. We note this would implement aspects of recommendations 4 to 5 of the Levy Review.
“A broader definition than this may undermine the purpose and benefits of scalability,” the submission said.
“ASFA specifically seeks further regulatory guidance and worked examples on how firms can go about excluding certain topics from the scope of the advice, as outlined in RG 175. At present, there is concern that regulated entities may avoid using the benefits of scaling to their maximal effect due to uncertainty in existing regulatory guidance.”
It suggested that the any guidance utilise the term “agreed scope of the advice”, and that regulated entities informing a client what has been excluded from the scope of the advice should be able to “make such disclosures at a ‘product’ or ‘strategy’ level, not at a more granular level of analysis”.
Looking at the modernisation of the best interests duty more broadly, ASFA largely backed the proposed changes to an outcomes-focused BID and the removal of the safe harbour.
“ASFA’s believes adding new elements to the existing best interest duty have the potential to cause uncertainty about the standard which needs to be met when advice is provided,” the submission said.
“This lack of clarity may become a barrier to achieving the underlying aspirations of the package, were it to pass, as the legal uncertainty around new elements of the best interest duty might take significant time to be clarified through subsequent case law.”
NCAs charging fees make consumer protection ‘paramount’
While also not included in the draft bill, in a December 2024 update former minister Stephen Jones changed his prior position and opened up the ability for the new class of adviser to charge for advice.
The option to charge for the advice provided by NCAs was championed by groups such as the Financial Advice Association Australia (FAAA) with the aim to enable a broader range of institutions to employ the new class of adviser, fostering neutrality across various advice models.
NCAs would, however, be prohibited from charging ongoing fees or receiving commissions and will be held to the modernised best interests duty, aligning with the standards set for professional financial advisers, according to Jones.
In ASFA’s view, if NCAs were permitted to charge a fee, “consumer protection would be paramount”.
“Treasury should consult further on what the appropriate consumer protection measures might be in this regard,” it said.
“ASFA also wishes to note the existing consumer protections that are in the Corporations Act covering advice fee deductions and all forms of advice provision.”
Also falling under ASFA’s banner of consumer protection is the education requirements, with the submission backing the currently proposed AQF 5 level qualification as an “appropriate standard”.
It added:
• the licensee should be recognised as wholly responsible for the NCA;
• NCAs should be subject to appropriate supervision arrangements, including closer supervision of the NCA by a relevant provider or executive manager, as proposed by Treasury;
• NCAs should be subject to record-keeping and reporting requirements – including providing NCAs details to ASIC via the Financial Adviser Register; and
• NCAs advice capabilities should be restricted to a certain class or classes of products in certain circumstances.
ASFA also sought further confirmation that superannuation funds can include advice provided by NCAs in advice that is collectively charged under section 99F of the SIS Act.
“If NCA fees and commissions are further considered, ASFA may work with the government and our members to consider an appropriate framework for charging models to meet the needs of providers and their members. In this context, consumer protection should be paramount,” it said.
AUTHOR
Keith Ford
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