Australia Advances Second Phase of Financial Advice Reforms

The Australian government has released new draft legislation as part of its ongoing effort to improve the accessibility and affordability of financial advice. This latest move represents the second phase of the Delivering Better Financial Outcomes package, which seeks to modernize how citizens receive guidance on their personal finances. The proposed changes follow the successful passage of the first tranche of reforms in July 2024. Assistant Treasurer and Minister for Financial Services Stephen Jones stated that the reforms are designed to help Australians earn more and keep more of their income. By reducing unnecessary administrative burdens, the government aims to lower the time and cost associated with preparing financial advice. These efforts are particularly focused on supporting the five million Australians who are currently at or approaching retirement age. The draft legislation, known as the Treasury Laws Amendment Bill 2025, was released for public consultation in March. This document outlines the next steps in the government's comprehensive roadmap for financial advice reform. Stakeholders and industry participants have until May 2, 2025, to provide feedback on the proposed measures. A central component of the broader reform package is the introduction of a new class of financial advice provider. This initiative is intended to expand the supply of quality, simple personal advice to consumers. These new advisers will be prohibited from charging fees or receiving commissions to ensure their services remain accessible. To maintain high standards, these new providers will be required to meet a modernized best interest duty. This duty ensures that any personal advice provided meets a uniform quality standard regardless of the provider. The government intends for this measure to give advisers the confidence to deliver appropriately scaled advice that aligns with a consumer's specific needs. The legislation also clarifies how individuals can use their superannuation accounts to pay for personal financial advice. Superannuation funds will continue to operate under existing obligations that govern the use of member funds. This clarification is expected to provide greater flexibility for members seeking professional guidance on their retirement savings. Another key aspect of the reform involves replacing traditional Statements of Advice with a more flexible, principles-based record. This new approach requires advisers to address four core principles when documenting their recommendations. The government believes this shift will make the advice process more fit-for-purpose for both the industry and the consumer. The Financial Services Council has noted the government's progress in implementing these changes. Industry experts are currently reviewing the draft bill to understand its potential impact on existing financial institutions. The government has emphasized that these reforms are vital for allowing life insurers and other institutions to expand their service offerings. While the first tranche of legislation focused on reducing red tape, the second phase delves into more complex regulatory adjustments. The government is also reviewing the Financial Planners and Advisers Code of Ethics to ensure it remains relevant as the industry professionalizes. This review will occur following the full implementation of the current reform package. Looking ahead, the government remains committed to refining these laws based on industry feedback. The consultation process is intended to ensure that the final regulations operate effectively across all sectors of the financial advice industry. Once the feedback period concludes, the government will finalize the legislation to move toward full implementation.