Introduction
Good morning, everyone. Thank you for tuning in. It’s terrific to be joining you once again — although the circumstances are in stark contrast to last year.
When we gathered in Adelaide none of us could have imagined the world would face the most severe economic crisis since the Great Depression.
The COVID-19 pandemic has placed immense pressure on health systems, communities and economies across the globe.
It has tested us like never before — with lockdowns, job losses and, at its worst, illness and the loss of loved ones.
But despite the challenges, Australia has achieved some of the best health and economic outcomes in the world.
The Government has acted decisively and last week’s Federal Budget – an Economic Recovery Plan for Australia — reaffirmed our commitment to create jobs, support Australians through the pandemic and guarantee the essential services Australians rely on.
It was a budget to rebuild our economy but also a plan to secure Australia’s future — and today I want to focus on the future of financial services and, in particular, the financial advice industry.
COVID and financial advice
The Government has carefully calibrated its budget and COVID-19 has forced many Australian households to do the same.
Households are making decisions about living on reduced incomes, they’re seeking advice about keeping their mortgage on track, and they’re considering the pros and cons of accessing their superannuation.
Household spending decreased 12.1 per cent in the June quarter and 2.6 per cent in the 2019-20 financial year — the largest quarterly fall in household spending, and the first annual fall, the ABS has ever recorded.
We are dealing with a recession like no other in living memory. Never have Australians been more focused on their personal finances and, in turn, never has there been a more valuable time for sound financial advice.
I’d like to take a second to acknowledge your role in helping Australians make decisions about their financial future and get to the other side of the COVID crisis.
You’ve been providing advice to distressed clients, doing pro bono work, providing discounted advice, putting in long hours. In times of crisis, Australians turn to their trusted financial adviser for advice and guidance.
I also want to acknowledge the Association for its leadership during this time.
As Philip Kewin said in the AFA Financial Adviser magazine, it’s remarkable that ‘advisers have reached out to clients at a time when they were already facing their own enormous challenges.’
You’re navigating COVID not only as financial advisers but also as small business owners, as employers, and in some cases, working parents and carers.
And even before the pandemic, the financial advice industry was undergoing significant transformation — the main focus of last year’s conference — following reforms to lift standards and in response to the Royal Commission.
Regulatory relief for advisers
That’s why I was so pleased to see regulators respond and make adjustments to help lessen the load when COVID-19 began to take hold.
In April, ASIC announced a series of changes to assist financial advisers, registered tax agents and superannuation funds to deliver advice to Australians on accessing their superannuation early under our temporary scheme.
Timely and affordable advice was paramount and ASIC gave the green light to providing a shorter-form Record of Advice instead of a Statement of Advice when giving advice about the scheme.
As of 8 October, 2.9 million individuals have accessed their superannuation under the early release scheme — a lifeline for many who faced the gut wrenching situation of needing help for the first time.
ASIC also eased the regulatory burden by delaying the collection of advice files and by putting several reviews and consultations on hold.
And more recently, ASIC has issued a no-action position in relation to ongoing fee arrangement obligations for Victorian financial advice businesses affected by the lockdown there.
Deregulation
Across the board, these regulatory measures were in addition to the more than 80 temporary regulatory changes the Government made to provide greater flexibility for businesses and individuals to operate during the coronavirus crisis.1
Since taking the role of Assistant Minister for Financial Services, I’ve met with hundreds of individual advisers and brokers, one-on-one and in small groups, to discuss the issues facing their industry. And that’s not to mention the time I’ve spent talking to people like Phil or other industry bodies – all of whom are passionate advocates for you, your interests and your industry.
I want you to know that I am listening and I am taking on board what you’re saying. I am working to address your biggest concerns. While we, like you, are focused on lifting the standards across the board for advice and implementing all the recommendations of the Royal Commission – which I’ll get to shortly – I’m also constantly looking for opportunities for red tape reduction, identifying obstacles to productivity and profitability, and reducing the burden on your industry and its participants.
It’s not just because you’re noisy. Working to make your life easier, makes our life easier. Financial advisers are a critical part of our economy and will be critical in our COVID recovery. I’m not ashamed to say that the Government has a vested interest in ensuring that you can provide financial advice to as many Australians as possible without being tied up in red tape.
Professional future
Longer term, the Government remains committed to a professional future for the financial advice industry.
Despite the challenges, I’m optimistic about where the industry is headed.
We’ve come quite some way along the journey to professionalisation of the financial advice industry. It’s useful to take a second to reflect on where we’ve come from.
The Government established the professional standards reforms for financial advisers in response to concerns that existing standards had not been commensurate with those required for technical and professional competence.
The industry itself had raised concerns that the existing minimum education and training standards had not been applied consistently across the industry, and questioned the rigour and quality of some training courses.
This was leading to a negative impact on consumers’ confidence in the industry. A lack of trust in financial advisers had become a barrier to Australians seeking financial advice.
The Government’s professional standards reforms date back to 2014 when stakeholders, including the industry bodies – showed strong support for the reforms in their submissions to both the Parliamentary Joint Committee inquiry into financial advice and the Murray Inquiry.
This was a great step forward by financial advisers.
The AFA’s submission to the 2014 Parliamentary Joint Committee strongly supported an increase in education standards in an earnest effort to professionalise the industry – including the national exam and a degree qualification – and in fact the AFA went even further in proposing two years’ experience.
The Government embraced these measures – we delivered on what the industry was asking for - and the legislation received bipartisan support in the Parliament. When the Bill passed the Senate in early 2017, the Labor Party expressed their full support for the measures, saying they’d been ‘a long time coming’.
For sure, timing hasn’t been on our side here – with both the COVID pandemic and the exit from advice by the major banks putting additional pressure on the industry.
But I’m optimistic about the future development of the financial advice industry. There are 900 students enrolled in FASEA approved bachelor degrees, and over 190 professional year candidates have joined the industry to date. As the industry continues to professionalise, I’m confident these numbers will only grow further.
I know many of you have expressed some anxiety about the FASEA exam – but I think it’s fair to say those fears have been allayed as the exams have progressed.
I was glad to finally see the legislation pass the Parliament in June to provide additional time for existing financial advisers to meet the qualification and examination requirements set by FASEA.
This extension ensures that all advisers, including rural and regional advisers, have more time to sit the exam.
The extension is also good news for working parents, including those taking parental leave during the transition, by ensuring they have time to meet the education requirements, maintaining a diverse adviser industry.
Just as today’s conference is online, FASEA moved exams online to meet social distancing protocols and also meet remote work requirements.
With 266 metropolitan sittings and 173 regional sittings already completed, the exam has an overall pass rate of almost 90 per cent – and advisers who have failed the exam receive feedback on what areas they need to work on before they re-sit it.
Of the 22,000 advisers on the Financial Adviser Register, close to 10,000 have already passed the exam. The remaining advisers have over one year and seven more exams available before the end of the transition period.
By 2026, all financial advisers will:
- have completed an approved exam
- hold a bachelor's degree or equivalent qualifications and
- undertake mandatory continuing professional development.
The reforms are working their way through the system and I’m confident standards will bring financial advisers in line with other professions – such as lawyers, doctors and accountants.
Standards will also ensure there is consistency across the industry and that all financial advisers have the skills necessary to provide high-quality advice to consumers, and better position the industry to serve consumers.
Next steps
The next step involves the Government establishing the single disciplinary body for financial advisers.
It’s a significant step. As you might recall, Commissioner Hayne noted that the financial advice industry lacked a ‘credible and coherent system of professional discipline’ for financial advisers, describing arrangements as ‘fragmented’.
The final report of the Royal Commission recommended a new disciplinary system for financial advisers, including specifically a single, central disciplinary body.
The Government agreed with the recommendation and we believe the body will streamline and encourage greater professional discipline in the industry.
Following consultation, we’re now working through the detail and we intend to introduce legislation by mid-2021.
We’re also looking to establish a forward-looking compensation scheme of last resort — a substantial step in rebuilding trust and confidence in the financial system’s dispute resolution framework. Again, we are aiming to introduce legislation by mid-2021.
Royal Commission
While I’m on the topic of Royal Commission recommendations, it’s worth giving a status update on the implementation of the Government’s response more broadly.
Before the coronavirus hit, the Government’s key priority in the financial services space was implementing Commission Hayne’s recommendations.
And we had made significant progress, with 24 recommendations implemented and another 35 progressed via consultation. However, like so many aspects our lives, this progress was disrupted by the onset of the pandemic.
Given the circumstances, we made the sensible decision to defer the introduction of yet to be legislated commitments by six months.
This meant measures due to be introduced into the Parliament by 30 June 2020, will now be introduced by the end of December 2020.
Similarly, measures originally scheduled for introduction by the end of December 2020 will now be introduced by 30 June 2021.
The delay also meant changes to the commencement dates for some measures.
The enhanced breach reporting regime and new obligations for financial services licensees to report and remediate misconduct by financial advisers will now commence 1 October 2021.
We announced our new timetable to provide the financial services sector with some breathing space, to focus efforts on planning for the recovery and supporting customers and staff.
Announcing the timetable also provided certainty and clarity about the Government’s commitments.
But I look forward to hearing from you all when consultation resumes on the single disciplinary body and compensation scheme of last resort measures.
Restoring trust in Australia’s financial system continues to be a key priority for the Government.
Implementing the Royal Commission’s recommendations is part of our vision for a financial system that delivers better outcomes for all Australians.
Fintech
Fintech is also part of the equation when looking to the future of financial services – and indeed, the wider economy.
In this month’s Federal Budget, we’re championing fintech as an industry that can lead Australia out of the COVID crisis – generating the jobs and investment we need for a swift economic recovery.
That’s why we’ve delivered an $800 million Digital JobMaker plan, including new funding for the Consumer Data Right, updated payments regulation, improved use of regtech by government, and much more. We’ve announced $9.6 million to update our Fintech Bridge program, making it easier for fintechs to export and attract investment from key partner markets.
We’re also investing an extra $2 billion through the R&D Tax Incentive – to help fintechs and other tech companies to innovate and grow.
In an incredibly difficult year for growing businesses right across the economy, it’s been extraordinary that Australia’s fintech ecosystem has continued to grow – and it’s a testament to the agility of our fintech businesses that they’ve been able to adapt and persevere through this economic shock.
We’re not only growing as a hub but we’re building on our reputation for quality.
I’m proud to say it is a mature industry, with a strong culture of collaboration with both challengers and incumbents, here and overseas. Over 40 per cent of Australian fintechs already have an international presence, and last year, seven Australian companies were named among the world’s top 100 fintechs.
I’m committed to supporting a sector that helps consumers be more engaged with financial products and services; that enhances financial literacy and capability; and that helps us all spend less time and less money managing our finances.
Consumer Data Right
At the centre of our focus on fintech is the Australian consumer. My overriding objective across all of my portfolio is to help restore consumers’ trust in the Australian financial system.
This is certainly true of our approach to the Consumer Data Right, which launched on 1 July.
It’s a safe and secure way for consumers to share their own data and it is being rolled out on a sector-by-sector basis right now, starting with Open Banking.
Open Banking will revolutionise the way consumers and small businesses approach the financial system. It will allow consumers to shop around for a better deal; to use more sophisticated comparison apps; and ultimately, to reduce the time and cost of switching providers.
At a time of renewed focus on personal data security, the CDR framework includes strengthened protections.
All data transfers through the Consumer Data Right will be on the consumer’s terms, with data only being shared with the express consent of the consumer.
And consumers can be confident that, if they choose to share their data, it will be kept safe and not misused.
Despite the COVID pandemic, we pressed ahead with launching the CDR in July because it’s never been more important to empower consumers and boost competition in the financial system.
At this time of immense financial stress, we’ll see extraordinary numbers of Australians seek to make changes to their financial affairs – switching or refinancing their mortgage, revising their investment risk appetite, looking at new credit or savings products.
And we’re already seeing strong interest from the Australian fintech ecosystem, with around 100 companies already opened applications to become accredited as data recipients, after just three months.
What’s more, the rollout of the Consumer Data Right does not stop at banking. Australians will soon be able to take control of their data in other sectors like energy, telecommunications, superannuation, insurance and more. And we’ve already got an inquiry underway to examine further possibilities for the expansion of the CDR, including providing write access for consumers.
The sky is the limit — as the technology evolves, so too will the offerings that will be available.
As part of the Budget, the Government announced a further $28.5 million to support the CDR rollout, which is in addition to more than $120 million already committed.2
Technology and tools of the trade
There is much uncertainty about what the future may hold yet it’s safe to say it’s going to involve a greater reliance on technology.
We understand that advisers have to price their advice to reflect the many hours of work they put in behind the scenes to provide the best quality of advice.
Often that goes way beyond the time required for a face-to-face meeting.
If consumers have to pay many thousands of dollars for a Statement of Advice, then many people who need that advice most will not be able to access it.
It’s not particularly useful if customers are paying for the manual production of hundreds of pages, much of which is boiler plate and they won’t read.
So what I’m focused on is helping advisers get access to the tools they need to deliver high-quality, compliant advice at an affordable price.
That can happen, but to do it, it’s going to need a greater role for technology.
And it’s going to involve the regulators taking a more forward-leaning approach to the rollout of technology that helps advisers do their job.
For financial advisers, it can unlock productivity.
It can enable them to deliver more good quality advice, to more people, in less time.
And most importantly, it can let them focus on the most rewarding and highest value-adding part of their jobs — spending more time with their clients, listening to their needs, tailoring solutions, and discussing their recommended actions.
Closing remarks
On that positive note, I would like to thank the Association for inviting me to take part in today’s virtual conference.
During all the chaos of COVID, I’ve been grateful for opportunities like this to talk to everyone at the coalface, so to speak.
I know it hasn’t been easy — as the Treasurer said ‘the road out will take time and there will be bumps along the way’.3
But I’m optimistic about the future. We have a plan with the Budget rebuilding our economy, creating jobs and securing Australia’s future.
We’re taking a practical approach as Australia continues down the path of having a truly professional financial advice industry.
By extending timeframes, by cutting red tape, by adjusting regulations, by giving certainty around Royal Commission legislation, we’re striking a balance so you can provide advice to Australians when they need it most.
The Government has already taken significant steps to ensure fintech benefits consumers and competition.
Despite all the challenges, we want as many Australians as possible to access quality professional advice when they need it. Ultimately, that’s the goal for all of us.
Thank you.
1 https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/extension-temporary-relief-financially-distressed
2 https://www.pm.gov.au/media/digital-business-plan-drive-australias-economic-recovery
3 https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/national-accounts-june-quarter-statement