Statement from the Joint Associations Working Group 

The Joint Associations Working Group (JAWG) is calling for crucial amendments to the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, to avoid significant unintended consequences and unfair outcomes for consumers, small businesses, advisers and the government.

Together, Schedules 1 to 3 to the Bill and the Imposition Bill are designed to reduce the tax concessions available to individuals with a total superannuation balance exceeding $3 million.

JAWG members have identified four key issues which need to be addressed before the Bill is legislated:

1. Taxing unrealised capital gains – an outworking of the calculations in the Schedules will see tax levied on the increase in the capital value of an asset, as well as actual taxable earnings. Capital Gains Tax will also be levied when the assets are sold;
2. The absence of indexation – the $3 million threshold, left unindexed, will lead to generational inequity and unnecessary uncertainty for the superannuation system;
3. Clarity on the proposed treatment of members in defined benefit funds, especially those already in receipt of pensions; and
4. The impact of material increases to liquidity requirements for funds holding large and unlisted assets such as family farms and business real property.

Applying different tax rates on capital gains, both notional and realised, is unnecessarily confusing and complicated. 

The JAWG has broad industry concerns about the consequences of this approach, including both the impact on small business and primary producers who hold their small business premise and primary production land in an SMSF, and the constraints of applying these provisions in large funds.

The JAWG notes there are other ways of reducing the tax concessions available to individuals with large superannuation balances that do not involve taxing unrealised capital gains.

We recommend the removal of Schedules 1 to 3 from the Bill to enable more holistic consultation on measures which achieve the Government’s objective of achieving greater equity, and which are consistent with existing taxation principles.

Background

According to ATO statistics, over $90 billion of commercial property (mainly small business premises and primary production land) is held by SMSFs. Industry research estimates around one in four SMSF members, impacted by this tax (13,500 SMSF members) hold real property in their fund.

Including unrealised capital gains in the calculation of earnings is likely to cause liquidity stress for many individuals and business entities impacted by this tax. The University of Adelaide estimates that had this tax been introduced in the 2021 and 2022 financial years, over 13 per cent of impacted members would have experienced liquidity stress in meeting the new tax obligations^[1].

Some small business owners will be forced to sell their business premises to save their business. Selling such assets is typically associated with substantial transaction costs and market timing considerations that are likely to further exacerbate potential losses and introduce other investment risks. 

The treatment of unrealised capital gains and carried forward losses in the Schedules presents substantial challenges given the nature of capital markets. It is not uncommon to see several bull market years followed by a sharp market decline. This means many members will effectively be cumulatively taxed on investments that make an overall loss when eventually sold without any real recourse to recover the tax already paid.

Including unrealised capital gains in the calculation of earnings means an individual’s year-on-year tax liability will be directly related to the performance of investment markets, adding to the unpredictability and making liquidity management extremely difficult.

The JAWG notes the root cause of these issues is the departure of the use of actual taxable earnings as the basis for calculating “earnings”. Including unearned income in the calculation immediately gives rise to unintended consequences and inequitable outcomes. 

The JAWG acknowledges the constraints and limitations faced by some funds in tracking actual taxable earnings allocated to a member. However, one alternative could be the use of an earnings rate that is a close proxy for actual taxable earnings. The 90-day bank bill rate is used in other areas of the superannuation legislation to approximate earnings.

We also call for the indexation of the $3 million threshold by average wage increases to ensure it retains its relative value, promoting stability and equity in the superannuation system.  Leaving the cap unindexed would mean over 500,000 current taxpayers would be adversely affected by the time they retire, or over six times current Government’s estimate. Further, a 30-year-old today will have a real cap of around $1 million in today’s dollars.^[2]

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The Joint Associations Working Group (JAWG) has proposed some core principles to strengthen the education standard for new entrants to the financial advice profession. These principles aim to enhance the flexibility of the education standard for new entrants while maintaining professional standards.

The number of financial advisers has reduced by 46 per cent since the peak in 2019, and only 381 new entrants joined and remained in the profession in 2023. With access to financial advice increasingly out of reach for many Australians, encouraging more advisers to the profession is now vital.

Only a small number of tertiary educators offer financial planning studies, with many already reducing their courses.

Under the JAWG proposal, the minimum requirement for new entrants would remain a tertiary degree. Importantly, the existing approved programs would remain valid and available. This proposal gives new entrants and career changers greater flexibility by recognising more of their pre-existing degree courses, while maintaining appropriate qualification levels to ensure consumer protection.

The joint position of the advice associations sector has been welcomed by the government, and JAWG members have met with Treasury to commence discussions on the proposal to refine in further detail and JAWG looks forward to collaborating broadly with the sector to ensure education requirements ultimately support more new entrants into the profession.

Core elements of the proposal

The proposal builds on the August 2022 Treasury consultation paper and includes the following key elements:

• Five core knowledge areas with a further three elective knowledge areas to be chosen from a broad list that recognises different streams of financial advice. Examples of elective knowledge areas could include SMSF Advice, portfolio management and aged care. 
• The ability to complete study units across multiple programs that can be supplemented by bridging units either contemporaneously or later if required.
• The curriculum is to be set and maintained by a broadly representative advisory group, including representatives from associations and academia.

About the Joint Associations Working Group 

The Joint Associations Working Group is a coalition of 11 industry and professional bodies representing financial advisers, stockbrokers, accountants, superannuation trustees and investors with the goal of making advice more affordable and accessible for consumers. Members include:

• Boutique Financial Planning Principals Association Inc. (BFP)
• Chartered Accountants Australia and New Zealand (CA ANZ)
• CPA Australia
• Financial Advice Association of Australia (FAAA)
• Financial Services Council (FSC)
• Financial Services Institute of Australasia (FINSIA)
• Institute of Public Accountants (IPA)
• Licensee Leadership Forum (LLF)
• Self Managed Super Fund Association (SMSFA)
• Stockbrokers and Investment Advisers Association (SIAA)
• The Advisers Association Ltd (TAA)

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The Joint Associations Working Group (JAWG)^[1] supports the implementation of the Quality of Advice Review’s recommendations to make financial advice more accessible and affordable to millions of Australians.

Quality financial advice can have a significant positive impact on the financial wellbeing of an individual. However, for many years there has been much discussion but no effective action to make financial advice more affordable and accessible to more Australians.

With five million Australians near to or at retirement and fewer than 16,000 financial advisers, the need for effective regulatory reform is even more pressing.

The JAWG believes that the Quality of Advice Review provides a series of carefully considered recommendations that taken together represent a holistic package of reform that will protect consumers and make advice safer, more accessible, and more affordable.

However, we also understand that to implement all of the recommendations as a holistic package may take significant time. In the interim, many Australians will continue to be denied access to the financial advice they need, or worse, may seek or otherwise receive advice from other unqualified channels to their financial detriment.

In acknowledging the Government’s commitment to resolving this issue for the good of all consumers, the JAWG supports the review recommendations being implemented in stages, rather than as a holistic package. This will ensure immediate gains can be made, including substantially reducing the cost of accessing financial advice.

The JAWG believes that the following recommendations can be implemented in the immediate short term:

1. Reforms to documentary requirements

• Recommendation 8 – Repeal Fee Disclosure Statements and introduce a ‘standard fee consent form’
• Recommendation 9 – Reform the requirement to provide a statement of advice in its current form
• Recommendation 10 – Financial Services Guides that can be accessed via a business’s website, or which continue to be provided in the current form
• Recommendation 11 – Require a client to provide written consent to being treated as a wholesale client

2. Best Interests Duty

• Recommendation 5 – Replace the existing best interests duty and related obligations (the duty to give appropriate advice, the duty to warn the client and the duty of priority) with a new statutory best interests duty that is a true fiduciary duty and does not include a safe harbour

3. Design and Distribution Reporting Obligations

• Recommendation 12.1 – Amend the reporting obligations for relevant providers

4. Deduction of fees and client directed payments

• Recommendation 7 – Adoption of clearer member directed charging requirements for the provision of personal advice by Superannuation Funds

5. Conflicted remuneration

• Recommendations 13.1-13.9 – Tighten some of the exemptions on the ban on conflicted remuneration

These short-term reforms have the collective potential to reduce the cost of advice, making advice more scalable and more accessible.

JAWG believes that recommendations that will require a longer timeframe to implement include:

Definitions

• Recommendation 1 – Revise the definition of Personal Advice
• Recommendation 2 – General Advice warning
• Recommendation 3 – Amend the definition of Relevant Provider

Amendments to the Code of Ethics to remove any inconsistencies with the new best interests duty.

Good Advice

• Recommendation 4 – Introduction of the Good Advice Duty

Design and Distribution Obligations

• Recommendation 12.1 – Limit the exception to the Reasonable Steps obligation in the distribution of financial products under the Design and Distribution Obligations to relevant providers.

The JAWG looks forward to collaborating with the Government on implementing much needed change and collectively working towards our common goal of making quality financial advice accessible and affordable for more Australians.

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[1] The Joint Associations Working Group (JAWG) is an established working group comprising key associations representing Australia’s financial services industry and professional financial advisers. Collectively, the JAWG represents more than 90 per cent of advisers on the Financial Advisers Register (FAR), and most major financial services firms. The associations have individually and collectively taken leadership roles in their sectors in Australia and globally dating back to at least 1886.

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Stephen Jones

The Joint Associations Working Group, consisting of 13 financial services industry associations who share a common goal to make quality financial advice more accessible to the community, welcomes the release of the final report of the Quality of Advice Review. We say it’s time to fundamentally reform the advice regime to ensure consumers can get the advice they want and need.

The Quality of Advice Review sets the reform foundations needed to ensure consumers can access the affordable and high-quality financial advice they want and need. We want this review to be a trigger to finding a real solution to what is a growing problem for many Australians.

This report includes a comprehensive suite of recommendations, which together would address many of the current problems with the financial advice regulatory regime. This would enable more good quality financial advice to be provided to more Australians.

Importantly, the final report holds consumers’ best interests paramount.

In order to meet the advice needs of Australian consumers, we agree it’s time to think differently about who can provide financial advice and how that is advice is provided, while ensuring consistent consumer protections by all advice providers.

The current regulatory framework is a major impediment to consumers being able to access affordable quality financial advice.

Years of constant reform aimed at protecting consumers have resulted in a significant regulatory wall between the consumer and the opportunity to access the advice they demand.

Retaining the status quo will only increase the advice gap, denying more Australians access to the financial advice they need to improve their financial wellbeing.  This will be to the substantial detriment of many Australians.

We believe that it’s time for the regulatory regime to be fundamentally reformed to ensure the advice needs of Australians are finally met.

The Quality of Advice Review has challenged the thinking of many, presenting very different ways to address long-standing problems.  It was never going to be easy to address the problems which Minister Stephen Jones described as a “hot mess” in June 2022.  This report presents a framework to make those changes and to put the interests of consumers front and centre.

We thank Michelle Levy for her broad engagement and consultation with all stakeholders, and a report which provides the catalyst for a strong reform agenda focused on the consumer.

We look forward to working collaboratively with the government and other stakeholders to deliver real reform that will ensure Australians can finally access the quality, affordable financial advice they need.

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Michelle Levy

The Joint Associations Working Group (JAWG) welcomes the publication today of the Quality of Advice Review (QOAR) Proposal Paper.

The Quality of Advice Review is critically important given its focus on how to improve the current system of providing financial advice for the benefit of all consumers.

This Proposal Paper demonstrates the Federal Government’s ongoing commitment to an independent review aimed at identifying suitable ways to improve access to quality, affordable and accessible financial advice for all Australians. The Paper sets out proposals to make it easier for consumers to have meaningful, fit-for-purpose conversations with their advice provider about all or part of their financial and lifestyle objectives while maintaining robust consumer protections — an objective the JAWG supports. We also take the opportunity to acknowledge the quality and depth of the engagement from the QOAR team led by Michelle Levy, given the complexities and range of issues involved.

In our earlier submission to the QOAR in response to the issues paper, we advocated  for a range of solutions aimed at achieving a sensible balance of consumer protections and regulatory oversight required to achieve these outcomes. As a coalition of associations, the JAWG understands and values the broader community good and significant social benefits that come from financial advice done well, and we look forward to continuing our engagement with Treasury, Government and other stakeholders to advance this agenda.

Read the submission.

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The JAWG calls on the Quality of Advice Review to take up recommendations to reduce the compliance burden and deliver affordable and accessible advice to more consumers.

The Joint Associations Working Group (JAWG) has collaborated to lodge a submission to Treasury’s Quality of Advice Review calling for a more consumer-focused regulatory approach, reduced costs, and greater recognition of professional judgement.

Existing regulatory requirements are confusing, complex, and overwhelming and mandate a one-size-fits-all advice process that neither caters for, nor considers, the individual needs and circumstances of each consumer. This could be addressed by ensuring advice is less costly to produce and presented in a way that is meaningful and more easily understood by individual consumers, under a principles-based, consumer-focused regulatory framework that encourages professional judgement.

The submission makes several recommendations and observations that include:

• A regulatory regime that supports an advice process aligned to professional judgement and the situations of individual consumers guided by professional standards, as opposed to compliance with prescriptive regulation, has several advantages including lower compliance costs via a risk-weighted approach to advice outcomes, and recognition of the advice sector as a profession.
• The removal of the safe harbour steps from the Corporations Act, and clarity on what is needed to satisfy the Best Interests Duty must be provided.
• Open data and the sustainability of the financial advice sector are key prerequisites to improving access to affordable quality professional advice and encouraging innovation in the sector.  There is a significant amount of unnecessary waste in the system that leads to additional cost, time and resource requirements for consumers and advice providers. Much of this waste could be reduced or eliminated through access to up-to-date and reliable data that is already available within the financial services ecosystem.
• A profession-wide position on the tax deductibility of initial and ongoing advice fees and a review of the ASIC industry funding model are needed.
• Retention of professional standards and education requirements while reviewing the one-size-fits-all education pathway with respect to current and potential advice specialisations and business models.

The JAWG calls on the Quality of Advice Review to take up these recommendations to reduce the compliance burden and deliver affordable and accessible advice to more consumers.  

The Joint Associations Working Group (JAWG) is an established working group comprising key associations representing Australia’s financial services industry and professional financial advisers. Collectively, they represent more than 90 per cent of advisers on the Financial Advisers Register (FAR), and most major financial services firms. The associations have individually and collectively taken leadership roles in their sectors in Australia and globally dating back to at least 1886.

Members of the JAWG are:

1. Association of Financial Advisers
2. Boutique Financial Planning Principals Association Inc.
3. Chartered Accountants Australia and New Zealand
4. CPA Australia
5. Financial Planning Association of Australia
6. Financial Services Council
7. Financial Services Institute of Australasia
8. Institute of Public Accountants
9. Licensee Leadership Forum
10. Self Managed Super Fund Association
11. Stockbrokers and Investment Advisers Association
12. The Advisers Association Ltd

Read the joint submission.

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