What will need to be included on new DBFO advice documentation?
The government has shared further details about how the Statement of Advice replacement documentation will look under Delivering Better Financial Outcomes legislation.
Last week, it was announced that the second tranche of the package will cover cutting red tape and expanding access to financial advice for all Australians.
One key element for financial advice professionals is the replacement of a statement of advice (SOA) with a client advice record (CAR) which it said will be simpler and more client-focused than the current format.
In its explanatory memorandum, the government clarified a CAR must include:
- The words “client advice record”.
- The scope of the advice.
- The advice.
- Reason for the advice, including how it meets client objectives, financial situation and needs.
- Cost of the advice to the client and benefits received by the provider.
- Name and contact details of the providing entity, as well as information regarding whether they are authorised representatives.
“The bill replaces SOAs with a principles-based, technologically neutral record that is in plain English and supports the client to make an informed decision about the advice. Licensees and authorised representatives will keep appropriate records on file to demonstrate their compliance with legislative requirements, but this information does not need to be provided to the client unless requested, in line with the Privacy Act 1988.
“The policy intent behind these new content requirements is to focus the CAR on the information a client needs to make an informed decision. The level of detail provided in the CAR is intended to be scaleable, depending on factors such as the scope of the advice. The intent is to reduce the length of the CAR where appropriate to contribute to reducing the regulatory burden in providing advice.
“Disclosing the costs of the advice, and the benefits received, and relationships that might reasonably influence the provider are intended to capture the full cost of the advice to the client and disclose factors that could influence the advice.
“Where the advice recommends replacing a product with another, information needs to be disclosed about the consequences, such as the charges or loss of a benefit incurred by disposing of a product. This is intended to act as a consumer protection to ensure the client can make an informed decision about whether to act on the advice.”
Records and documents must be kept for seven years from the day the advice is provided.
Commenting on the news, Financial Services Council (FSC) chief executive, Blake Briggs, said: “We are pleased the government is maintaining momentum to deliver on its commitment to deliver advice reform.
“Layers of red tape and onerous regulation has meant that financial advice now costs more than $5,000 in some cases, putting it out of reach for millions of Australians. The government’s broader financial advice reform package has the capacity to reduce the cost of providing advice by 40 per cent.”
Vanguard Investments Australia managing director, Daniel Shrimski, said the cost of advice was a barrier for everyday Australians receiving advice and that the reductions to administration was “great news”.
“We look forward to more Australians having the ability to access financial advice, support and guidance, and develop a clear plan – something that is critical to improving retirement confidence and helping Australians achieve financial freedom.
“We look forward to seeing further changes that support advisers in helping Australians with their financial needs.
“We also welcome proposed changes in the draft legislation to allow super funds to use ‘nudges’ to support members with important decisions about their retirement savings. There is a need for a full spectrum of financial advice, support and guidance, based on consumer preferences, needs and circumstances.”
Insignia Financial’s chief customer officer, Renee Howie, said: “Insignia Financial and its associated brands, MLC, Shadforth and Bridges, welcome the continued commitment to assist Australians as they save for retirement and the opportunity to review the draft Delivering Better Financial Outcomes legislation released today.
“The client advice record is a much-needed reform. However, reforms to best interest duty and the removal of the safe harbour steps are also necessary to facilitate more affordable advice for Australians.”
Momentum Media’s wealth portfolio is hosting a pre-election event on 10 April with key policy makers where the DBFO will be dissected in great detail. Click here to find out more.
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Laura Dew
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