Three years after QAR: what’s changed?

Welcome to the fourth edition of The Retirement Rubicon.

This week marks three years since the final Quality of Advice Review (QAR) report was delivered to the government (16 December 2022). It’s a good moment to take stock of where advice reform has actually landed, and what still needs to happen if Australians are going to get meaningful help with retirement planning.

In this edition, we:

The final report of the Quality of Advice Review was delivered to then-Assistant Treasurer and Minister for Financial Services, Stephen Jones, just over three years ago.

The report, led by Allens partner Michelle Levy, was a recommendation of the 2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Hayne Royal Commission).

The QAR report made 22 recommendations aimed at improving the accessibility, affordability, and quality of advice. Two were particularly consequential for super:

The Government’s response arrived in stages under the “Delivering Better Financial Outcomes” (DBFO) banner.

High level timeline:

The Government broadly accepted around half of the QAR recommendations in principle, with a view to implementing DBFO across a series of legislative ‘tranches’.

A Bill introduced in March 2024 implemented parts of QAR, including Recommendation 7 (fees from super to advisers). This proved to be the most contentious element of Tranche 1, which nonetheless passed in July with minor amendments.

The response to the remainder of QAR, noted as the ‘second tranche of DBFO’, includes:

What is now being considered, 2A, contains issues of significance to super funds, specifically clarity on advice topics able to be delivered by super funds, as well as ‘targeted superannuation prompts’, effectively member nudges; both of which if done correctly will not require a fund trustee to hold an advice AFSL.

Three years on from QAR, roughly half of the DBFO response remains unlegislated, including key details on the NCA and the full scope of what funds can do. During that time, an estimated 300,000 to 450,000 individuals are likely to have retired, many of whom could have benefited from a faster enacting of DBFO.

In her letter of transmittal for the QAR final report, Michelle Levy noted that its purpose was to “improve the accessibility and affordability of quality financial advice”.

Three years on, how are we tracking?

So accessibility has materially deteriorated since the Royal Commission (with most major banks exiting their advice businesses).

The QAR, drawing on Adviser Ratings data, noted that:

More recent Adviser Ratings data suggests the median advice fee now sits at $4,688. Not much joy on affordability either.

While the industry has materially lifted standards, the ongoing issues around Shield and First Guardian, including the role of lead generators and alleged incentives to recommend specific schemes are a reminder that:

The scorecard three years post QAR is mixed at best: fewer advisers, higher fees, and lingering quality concerns at the fringe.

In our February 2024 Treasury submission on the retirement phase of super, we opined that super funds, particularly profit-to-member funds, hold the key to delivering help, guidance and assistance to middle Australia.

Specifically to the ‘messy middle’ quintiles (2 and 3 below) who are not wealthy enough to be considered viable under advice licensee cost structures, but who have sufficient household assets, particularly superannuation (and very possibly housing wealth) to need some level of support.

We have also long advocated for the relaxing of the ‘factual information/general advice/personal advice’ divide, arguing that the concept of ‘guidance’ should be “brought in from the cold to sit in between General/Personal Advice on the one hand and Factual Information on the other”.

Now the Actuaries Institute has added its voice in advocating for a re-think of the current advice framework. More on that below.

The Actuaries Institute has made a timely contribution to this issue with a recent discussion paper titled ‘Financial Advice Reform and Help, Guidance and Advice’.

Developed by a working group of credentialed professionals, with input from advice and super sectors, the paper aims to address the financial advice gap by segmenting support into three levels:

As noted in the paper, the Retirement Income Review also leaned into the concept of ‘guidance’, suggesting it as “advice or assistance provided to people that does not relate to a financial product recommendation”.

The Actuaries Institute rightly notes that there is currently no definition of ‘guidance’ in the Corporations Act, while the draft DBFO Bill on Tranche 2A is equally silent on the matter (other than the proposal for targeted superannuation prompts).

Stakeholders consulted for the paper expressed strong support for formally recognising ‘guidance’ into the advice landscape.

That said, there is also a recognition that for ‘guidance’ to be most effective, known data gaps (in respect of household composition, assets, debt, partner status and housing tenure status) need to be addressed. This aligns with our observations of the Retirement Income Covenant triennial pulse check discussed in our Retirement Income Covenant turns 3! edition.

‘Guidance’ also presents an opportunity for digital tools to be leveraged to increase scalability, accessibility and efficiency, either stand-alone or in a hybrid model.

Properly designed digital guidance allows consumers/members to engage on their own terms, build an understanding of their circumstances, prospective future paths and tradeoffs, without the stigma or shame that may come with limited financial literacy.

If we are going to improve advice accessibility and affordability, guidance will most definitely have to be brought in from the cold, powered by human-centric UX in tools and calculators that can do the heavy lifting at scale, bounded by robust guardrails.