CARs to the Left of Me, Budgets to the Right — Here I Am, Stuck in the Middle of an Election with You

The financial advice sector faces a period of significant regulatory transition, with last week's announcement of tranche 2 of the Quality of Advice Review (QAR)/Delivering Better Financial Outcomes (DBFO) regulatory changes and the release of the 2025/26 Federal Budget. With a federal election likely to be called in the coming days, these announcements set the stage for a pivotal moment in the evolution of financial advice regulation.

Tranche 2 DBFO Reforms: Progress with Significant Gaps

The Government's release of tranche 2 DBFO reforms addresses some key components of the anticipated regulatory changes but falls short of delivering a complete package. The draft legislation consultation focuses primarily on superannuation advice and replacing Statements of Advice (SOA) with Client Advice Records (CAR).

The new legislative package includes three main components:

1. Advice Through Superannuation - Clarify when advice relates to a beneficial interest in a superannuation fund, that the fund can apply the collective charging methodology for that advice. This aims to provide greater flexibility for super funds to deliver cost-effective retirement advice to their members.
2. Targeted Superannuation Prompts - Creating a framework for trustees of superannuation funds to send targeted prompts to members, helping to drive engagement at key decision points.
3. Client Advice Records - Replacing the current SOA requirements with a new, principles-based CAR focused on supporting clients to make informed decisions.

While these changes represent progress, industry stakeholders note the conspicuous absence of two crucial elements expected in the reforms:
  - The new class of adviser
  - The amendments to the best interest duty

The Client Advice Record (CAR) reform maintains the same obligations regarding when an adviser must provide a CAR to their client, but attempts to modify presentation and content requirements to be more client-focused. Unlike SOAs, the CAR legislation will clearly state that they are technologically neutral and separated from compliance and administrative information kept on file. The format is intended to be scalable based on the complexity of the advice provided.

CAR requirements include:
  - Prominent display of "Client Advice Record"
  - The scope of advice
  - The advice itself
  - Reasons for the advice, including how it meets client objectives
  - Cost of advice and benefits received by the provider
  - Provider details and information

While the legislation in itself won't make a significant difference to advice documentation given the similarities in requirements, it offers an opportunity for licensees to take a 'blank document approach' to deliver advice documentation to their clients in a clear, concise and effective manner that better helps clients understand the recommendations being provided, verse meeting compliance obligations which can remain in the file. This approach allows advisers to present advice in a more client-friendly format, enhancing the client's understanding and engagement with the advice.

The response from the profession and broader industry has been tepid at best, with all acknowledging this is just a placeholder before the election. Collectively, the FAAA, FSC and CALI all expressed disappointment at the lack of elements that would deliver on the promise of enhancing accessibility to quality financial advice while calling for further consultation and engagement to ensure the final legislation delivers on the promises made by the Government and opposition.

2025/26 Federal Budget: Implications for Financial Advisers and Clients

To say the Government did not expect to deliver this budget becomes more apparent when we consider that at 93 pages, compared to 200 pages in last year's budget, it was very light on details. With the intervention created by ex-Tropical Cyclone Alfred, the Government took the opportunity to push out the need to call an election by a few weeks and put pressure on the opposition before the election got underway with some early election promises. As observed by some, this was not a Budget focusing on the future, but rather a few weeks away.

Advisers can't ignore the 2025/26 Federal Budget as it presents several elements relevant to financial advisers and their clients. Key budget measures with implications for financial advice include:

Personal Income Tax Changes
The Government announced new tax cuts for all Australian taxpayers, focused on the first tax bracket:
  - From July 1, 2026: The 16% rate ($18,201-$45,000) will be reduced to 15%
  - From July 1, 2027: The rate will be further reduced to 14%

Each 1% reduction equates to approximately $268 per annum. This creates a strategic consideration for financial advisers with lower-income clients, as by 2027/28, the effective tax rate of this bracket will be lower than the superannuation concessional contribution tax rate for low-income earners.

Medical and Cost of Living Support
The budget includes several measures that may further impact clients' financial plans:
  - Lowering the PBS general patient co-payment from $31.60 to $25.00 from January 1, 2026
  - Extension of energy bill rebates of $75 per quarter for eligible households for two further quarters until December 31, 2025
  - Increased Medicare levy low-income thresholds

Regulatory Oversight Enhancement
For the financial advice profession itself, the budget includes:
  - Strengthened Tax Practitioners Board (TPB) sanctions and modernised registration frameworks
  - Additional funding for TPB compliance activities targeting high-risk tax practitioners
  - $999 million over four years to the ATO for tax compliance activities
  - $207 million over two years for ASIC's business register enhancements

The Election is here (nearly)

Which brings us to the election. Depending on when you read this, it may have been called, or it might come in the next few days. From an advice perspective, both major parties have committed to several measures that will affect financial advice practices. 

The ALP has had carriage over the past 3 years of DBFO (covered above) and the CSLR, and outside the CSLR review, which is currently being conducted by Treasury, and a more recent announcement about modifying the education pathway for new entrants. There is a long-term promise to review the Code of Ethics when DBFO is finalised, but when, how, or what it aims to do is not yet defined. One certainty is that Stephen Jones is retiring from Parliament at the election, and a new Financial Services minister will be appointed. 

One of the benefits of being in opposition is that you can promise anything and everything. From this perspective, the Coalition have stated they would go further with the QAR recommendations and implement them in full, provide CSLR relief by broadening the contributors to the scheme, reducing the sector cap, spreading payments out over more years, as well as reviewing the methodology used by AFCA in awarding compensation. They have also committed to reviewing the Code of Ethics and broadening the degree requirements to provide more flexibility. Their other commitment is to give advisers access to the ATO portal (noting its logistical complexity and the fact that the ATO and accounting bodies oppose the idea). 

All in all, there is little difference between the parties that will form Government in the next term for advisers to choose between based on what's come, and what's been promised. 

Strategic Implications for Advisers

While we wait for the election to be called, run, and won, these regulatory and budget announcements create both challenges and opportunities for financial advisers:

1. Preparation for CAR Implementation: With the shift from SOAs to CARs on the horizon, practices should begin planning for this transition, including thinking differently about how advice can be documented and shared with clients under a new regulatory obligation.
2. Superannuation Strategy Recalibration: Clarifying superannuation advice creates new possibilities for superannuation trustees and fund advisers, particularly for providing better advice outcomes for those members approaching retirement.
3. Tax Planning Considerations: The future tax cuts, while modest, will impact financial planning for lower-income clients, particularly regarding the interplay between personal income tax and superannuation contributions.
4. Election Strategy: With an election imminent, advisers should monitor policy announcements that may impact the financial advice landscape, particularly regarding the missing elements of the DBFO reforms, CSLR funding, ASIC levy funding and broader tax deductibility of financial advice.

Looking Ahead

The financial advice sector stands at a crossroads, with partial reforms progressing while key components remain unaddressed. As the election approaches, the completion of the DBFO package will likely become a focal point for industry advocacy.

In the coming months, it will be critical for advisers to engage with industry associations, provide feedback on the draft legislation, and prepare their practices to implement these changes. Whatever the election outcome, the direction of travel toward more accessible, quality financial advice remains clear, even if the path to get there is still being negotiated and requires more lifting from the profession than the Government.

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