10 minute read
THE WAY FORWARD
The Australian Securities and Investments Commission relaxed some of its compliance activities to allow more Australians the ability to access financial advice to manage the fiscal impact of the coronavirus pandemic. Tharshini Ashokan weighs up the success of these moves and if they potentially are a prelude to how practitioners will deliver advice in the future.
Temporary compliance relief measures were introduced in April by the Australian Securities and Investments Commission (ASIC) to assist the financial advice industry and its clients through the worst of the COVID-19 pandemic and lockdown. As part of the temporary relief ASIC provided, financial advisers were given the ability to issue a record of advice (ROA) instead of a full statement of advice (SOA) when providing services relating to the coronavirus economic relief measure allowing individuals to access their superannuation benefi ts early.
In addition, the corporate regulator permitted registered tax agents to give advice to existing clients about the instrument without needing to hold an Australian financial services licence (AFSL).
Industry bodies, including the SMSF Association, Institute of Public Accountants (IPA), Financial Planning Association, Chartered Accountants Australia and New Zealand, and CPA Australia, revealed they had collaborated with ASIC to introduce these initiatives to make the provision of advice less complicated for consumers financially hit by the pandemic.
Though the compliance relief implemented by ASIC was largely welcomed by financial advisers at the time, a recent study conducted by the industry body’s found the measure allowing an ROA to be used in place of an SOA had proven impractical for the majority of practitioners providing advice regarding the early release of superannuation.
According to SMSF Association policy manager Franco Morelli, advisers who had used the relief measure found it eff ective, but most of the industry body’s members surveyed had not used the relief provided.
“The overall feedback we got from the majority of members is they weren’t able to use the relief,” Morelli says.
“Obviously, ASIC tried to move quickly and that meant the relief couldn’t be defi ned as perfectly as possible. As a result there were many scenarios where the relief just wasn’t able to be practically used.”
The reasons given by members who had not used the measure included a preference for SOAs as a less risky alternative to ROAs. Some members stated they had always had the ability to use an ROA and did not require the relief measure because the client’s circumstances had not changed.
Superology director Tracey Scotchbrook believes the compliance relief measures allowing the provision of ROAs was timely, but agrees many advisers appeared to have mixed feelings as to the eff ectiveness of them.
Based on her discussions with other practitioners, most seemed to be of the view that many consumers with a financial need to access their super early were unlikely to have sought advice.
“In light of the impact of COVID-19, replacing SOAs with ROAs was a really practical, quick measure that could be implemented using the existing system. It was really about fi lling that urgent need for advice,” Scotchbrook says.
“However, for a lot of people, given the financial pressures they were experiencing, I think advice would have been the furthest thing from their mind.”
In addition, there were instances of licensees either not authorising advisers to use ROAs or cautioning against it and indicating an SOA should still be used. This was attributed to licensees’ concerns regarding the need to meet legislative and ethical requirements, such as the Financial Adviser Standards and Ethics Authority (FASEA) Code of Ethics for financial advisers.
“There were some licensees that suggested a full SOA was the preferred option and that it was really only under extenuating circumstances that the ROA should be considered,” Scothchbrook notes.
“Broadly, from speaking to advisers and licensees, there’s been quite a mixed response – some looked at the ROA as an opportunity to get out and help people, while others were approaching it with quite a lot of caution because of that compliance burden and risk.”
IPA head of advocacy and technical Vicki Stylianou sees the measure as a positive step in the overall approach to compliance within the financial advice industry despite the mixed response as to the move’s effectiveness.
“For those who did want the advice, at least the regulatory relief enabled the advisers to give it legally,” Stylianou notes.
“I think ASIC’s relief measures have been very eff ective. They’ve shown when government and government agencies need to act quickly, and when they need to be reducing red tape, it can be done.”
She also recognises ASIC’s decision to allow registered tax agents to give advice to existing clients about early access to superannuation without holding an AFSL as a positive move for the industry, despite being temporary.
“IPA has been on the record for a very long time to say that tax agents should be able to give this advice – simple, straightforward advice to consumers that doesn’t include product advice or anything like that,” she adds.
“I think this particular measure demonstrates that the world is not going to fall apart if you let tax agents legally give advice to their clients.”
Morelli also considers the temporary inclusion of tax agents by ASIC as a much-needed step towards allowing a more permanent arrangement for tax practitioners being able to provide financial advice in the future.
“I think tax agents appreciated the ability to at least consider discussions on early release of super as a COVID-19 relief measure,” he observes.
“It’s extremely frustrating when a client might come to a tax agent and they want to discuss what measures are available to them, but when it gets to superannuation, that discussion is sometimes stifled. From that angle, it defi nitely helps to push a more inclusive approach even though it probably wasn’t used on a significant scale.
“We think a more inclusive approach is the way of the future for both tax agents and advisers.”
From the consumers’ point of view, many practitioners believe ASIC’s compliance relief measures did have the intended eff ect of helping consumers who sought financial advice in a timely manner.
“In terms of benefi ting the consumer, the measures were really practical because you had the early release concessions, but you also had the other ROA concessions, which allowed an alternate adviser from the same fi rm to provide that advice rather than the original practitioner,” Scotchbrook says.
“Advisers were quite stretched and it meant people could get that advice piece and quickly.”
Morelli echoes this point of view. “For those consumers who needed advice quickly, I think the relief defi nitely helped that occur and it probably helped it was off ered at a cheaper price point as well,” he says.
“The feedback we’re getting is that ROAs can be just as useful as SOAs and that’s something the SMSF Association has been looking at. We fi nd many consumers don’t appreciate long SOAs, they just want good advice, and that’s why we’re continuing to push for improvements to the financial advice framework.”
He says an improved and consumercentric financial advice framework could potentially include shorter advice documents and the provision of scaled advice for SMSFs. It might also include the provision of strategic advice without the recommendation of a financial product.
“It doesn’t matter if someone is an accountant or a financial planner. We think if they’ve got the appropriate educational standard, the same rules should apply, and then consumers will have more access to advice from a wider range of professionals,” he adds.
Stylianou thinks an ASIC survey of individuals who received advice would be the best way to determine the impact of the regulator’s compliance relief measures on consumers and whether the advice was ultimately beneficial.
“You would hope that if you went to the trouble of speaking to an adviser, it would influence not only how you spent the money, but whether or not you should have accessed your super in the first place,” she says.
“It would be interesting to know whether the advice made a diff erence to consumers’ decision-making. You would hope so.
“There’s a self-selection process here. If you go to an adviser, it probably means you’re going to listen to them.”
Overall, she believes the temporary measures brought into eff ect by ASIC have highlighted the possibility of a less burdensome compliance regime for the financial advice industry.
“It shows that it is possible to have some more streamlined and eff ective systems that would enable consumers to have choice in terms of who they’re going to get advice from,” she notes.
“What we’ve got at the moment, the system we’ve got at the moment, is quite bureaucratic. It’s over-regulated we could say.”
While she agrees high education standards are important, she thinks the need for an adviser to produce a 30 to 40-page SOA the consumer is unlikely to read is excessive. According to Stylianou, such standards can only lead to higher costs and will drive away consumers.
“There are a lot more people out there who want access to financial advice, but aren’t prepared to pay the kind of prices that you need to pay as a result of the current compliance framework,” she adds.
Morelli agrees the measures have been an important step for the industry in terms of demonstrating how a less restrictive compliance regime might operate and hopes it will lead to a more consumerfriendly framework.
“I think the temporary compliance measures have started a great discussion,” he notes.
“From the association’s point of view, we can definitely see the government and ASIC are looking to engage more on these issues regarding scaled advice and relating to a more extensive use of ROAs, and that can only be a good thing.
“The fact there was a need for temporary relief probably indicates the compliance framework needed a review.”
Despite not being used widely by advisers in terms of early superannuation access, Scotchbrook does believe the temporary compliance measures have been a good indicator of what a reformed regulatory framework might look like.
“It has really been integral in opening the door for being able to have that conversation for reform, which I think is a really positive thing. It has put us in a much better position than where we were before,” she says.
“While the government is still having to deal with the issue of COVID-19, it’s probably not something that’s going to happen in the immediate future, but in the short to medium term I would hope the government will remember this.”
According to Morelli, timely reform of the financial advice framework could also help the economy recover from the detrimental eff ects of the pandemic.
“Post COVID-19 and the economic recovery, we know the government is focusing on deregulation and the advice framework is a big part of that,” he says.
“This is something the SMSF Association is really going to push so more advisers can give that effi cient and aff ordable advice, and I think advice is a key part of the economic recovery.”
Stylianou agrees the coronavirus relief measures provided by ASIC have shown a less burdensome compliance structure could ultimately work for the financial advice industry in the future.
“The IPA is arguing ASIC’s temporary compliance provisions should be implemented for the longer term. It might need a bit of tweaking but the general concept of allowing tax agents to give simplifi ed but strategic advice, not product advice, and having a simplifi ed process and ROA-type situation, is something that is good for the longer term,” she says.
“There does need to be a review of the system because the current system is not fulfi lling the policy objective of enabling consumers to get access to aff ordable and competent advice.
“There’s been a lot of work done with FASEA and its Code of Ethics to professionalise financial advice, but at the same time it hasn’t quite worked and there’s still a way to go.”
