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Major barriers for super funds to provide more financial advice to members have been demolished, as Minister for Financial Services Stephen Jones announced a significant “legal and cultural” reform package aimed at boosting consumer access to advice.
In an invitation-only ceremony at Parliament House in Canberra on Thursday, attended by Investment Magazine, Jones revealed full final details of the government’s response to the Quality of Advice Review (QAR) led by Allens partner Michelle Levy.
Super funds were granted a special and leading role in the new regime, including special new permissions to general advice laws, allowing them to issue “nudges” to members when advice may be appropriate without triggering the complex laws governing comprehensive advice.
It points to certain life stages such as a pre-retiree at 55 who needs a strategy re-adjustment or a person at a preservation age who would be better off switching to the tax-free pension phase – an issue that affects half of APRA-members.
The announcement came just days after Treasury released a discussion paper on how to improve the retirement phase of superannuation, which also flagged the importance of guidance, education and communication for members by nudging through a service similar to the UK’s PensionWise.
“This will build upon the advice reforms I outline today,” Jones said, “Because advice is integral to ensuring that members get the most out of their superannuation.”
The minister said he expected a “significant response” from funds, meaning he wants to see them actually giving more advice. The comments build on his suggestion at this year’s Retirement Conference that funds may struggle to meet their obligations under the Retirement Income Covenant without giving advice.
To aid their ability to do that, the government will introduce a new class of advisers to advise on less complex matters – to be dubbed ‘qualified advisers’ – who will need to at least receive a diploma, with the exact level of education required to be determined over time. This new class is distinguished from “professional” advisers, i.e. those who charge a fee for service and meet the current educational and ethics standards for financial planners.
The government will clarify that charging members for retirement income advice from their super balance will satisfy the sole purpose test, and will also issue a “broad” list of acceptable advice topics eligible to be charged.
This includes investment decisions (such as investment options within a fund and contribution strategies), retirement incomes delivery (projections, drawdown strategies, and product recommendations), and the consideration of broader personal circumstances (debt, assets and partner situation).
The duty to act in the best interests of clients will remain, however, for all forms of advice, including digital and intra-fund advice. This stands in contrast to Levy’s proposal that “non-relevant providers” such as super funds, banks, and insurers should be subject to a less onerous duty to give ‘good advice’.
“This will ensure that the advice is quality, helpful, and safe,” Jones said.
The $300 billion mega-fund AustralianSuper warmly welcomed the announcement, with its chief officer of retirement Shawn Blackmore calling the reform “a big win” for Australians and will help them move out of the saving mindset in retirement.
“‘Superannuation funds are the right vehicle for these reforms as there is already very strong legislation governing fiduciary duty to ensure funds such as AustralianSuper act in the best financial interests of their members,” he said.
“Introducing a new category of financial advisor is a smart way of addressing an urgent need for straightforward advice that is going to grow exponentially in the next decade.”
AustralianSuper said it has been trying to find a “sensible middle path” alongside the country’s second-biggest fund, Australian Retirement Trust, on issues such as the removal of Statements of Advice (SoAs), broadening the scope of intra-fund advice, and clarity of the sole purpose test and charging in February following the release of QAR. It broke with fellow industry funds to lobby government directly as a duo over the two-year consultation period.
“This package delivers on that for superannuation members and financial consumers more generally,” a statement from AustralianSuper read.
Another fund that has been vocal in its enthusiasm to provide more advice was UniSuper, which told Investment Magazine earlier this year that it has placed the issue on par with prudent investment. Its head of financial advice and education Andrew Gregory said too many Australians have been stuck in the advice limbo for too long.
“For many of these people who are stuck in the middle, simple questions turn into complex answers,” he said.
“The recommendations show the answer to disengaged members is aspiring to better advice options, not resorting to defaults. When it comes to creating great retirement outcomes, ‘set and forget’ can mean the missing middle is forgotten again.”
Aware Super’s chief executive, Deanne Stewart, echoed the sentiment and said the fund is “especially pleased” to see the role of nudges recognised.
“There are many simple questions that we should be able to answer for members without having to make them book an advice appointment, so we can help more Australians to better understand, and better manage, their superannuation,” she said.
However, it is understood many other funds are apprehensive about giving more advice to members, given past problems experienced by many retail funds in giving superannuation-related advice well-documented by the Hayne royal commission. Some profit-for-member funds are particularly concerned as any compensation for poor quality advice provided to members may have to be funded from the retirement balance of other members, presenting a prudential and reputation risk.
Adrian Gervasoni, a senior executive at the Industry Fund Services (an advice provider to super funds owned by a handful of industry funds), told the Licensee Summit hosted by Investment Magazine sister publication Professional Planner in June that the enthusiasm from the super sector to see the QAR reforms implemented was overstated.
“This focus on making advice accessible and affordable, I’m still looking for who really wants to solve for that,” Gervasoni said. “There’s an expectation that super funds will … I can tell you there’s a small number of them that are genuinely interested in it. The others will be brought in kicking and screaming.”
And while consumer groups such as Choice and Super Consumers Australia broadly welcomed the reforms, they expressed caution about conflicts of interest that might emerge from super funds, banks and insurers giving more advice.
