'New class of advisers' need clear-cut distinction: FAAA

Professional reputations could be harmed if the government does not distinctly delineate between its proposed new class of advisers (NCAs) and financial advisers, the Financial Advice Association Australia (FAAA) warns in anticipation of the looming Delivering Better Financial Outcomes (DBFO) Tranche 2 reforms.

Addressing the first day of the 2024 annual Congress, FAAA chief executive Sarah Abood proposed some ground rules around the advice NCAs should and should not be able to provide.

Assistant treasurer Stephen Jones first called them "Qualified Advisers", much to the criticism of the industry and later assured this was subject to change.

This was an "ill-chosen term," Abood said, as financial advisers have earned the right to be called a "financial adviser" and hence after consultations with Treasury, this has evolved to the term "new class of advisers" before an official name is cemented in legislation.

The FAAA is pushing for the words 'planner' or 'adviser' to not appear in the title.

"We have high standards. We don't want our reputation to be harmed if the quality of the advice that's given by the NCAs isn't up to scratch. The education required for NCAs will be commensurate with the areas of advice that they're offering," she said.

"As we know, even simple advice is not really that simple, and it's vital that people advising consumers have the knowledge required to do that."

Abood went on to suggest how NCAs can be compliant within the rules of the law, such as limiting them to products a client already owns.

"We could perhaps create a safe list of products and strategies that are harder to get wrong. Perhaps we could define simplicity in relation to the client circumstances, such as holding assets and income below a certain level. There are several options here, but what's not negotiable is we need a very clear distinction," she said.

In terms of education for NCAs, RG146 will not suffice as Abood believes they require something more substantial.

"It's extremely important that the education for NCAs be able to count towards the full financial planning degree, one of the two big opportunities that we see in this proposal is that the NCAs of today can become the professional financial advisers of the future," she said.

Advice practices can too leverage NCAs to advise children or the grandchildren of existing clients.

"Advice firms should have this option. This provides a level playing field, enhances competition and it gives consumers more choice," Abood said.

Tranche 2 of the DBFO reforms will open limited advice to NCAs who work for banks, superannuation funds, and life insurers. It includes the proposed rationalisation of the best interests duty and removal of the safe harbour steps.

This week is the final sitting week for parliament.

Abood said: "We're expecting to see the draft legislation [for Tranche 2] imminently. I'll certainly be asking Minister Jones, [who will address the Congress] on Friday for a specific date."