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Funds to provide advice in a ‘positive step for millions of members’
Changes to financial advice legislation announced on Thursday will clear the way for super funds to become providers of advice at scale, giving them greater leeway to direct members into more suitable products.
“This is a pragmatic step that will expand the provision of personal advice to improve consumer outcomes,” said financial services minister Stephen Jones.
The changes will create a new class of financial advisers dubbed “qualified advisers” that Jones expects will “generally be employees of licensed financial institutions”, with the licensee wearing the risk of the advice provided. Qualified advisers will be able to provide advice on simple topics and will be subject to a “modernised” best interests duty, which is expected to be less prescriptive and more of a principles-based framework.
“I have often said that the nut to crack on this was to nail the scope, charging and qualifications of this cohort,” Jones said. “On scope, qualified advisers will focus on providing simple financial advice. On fees, qualified advisers will be prohibited from charging a fee and from receiving a commission, which will help to restrict their advice to simple advice. And on qualifications, as the name suggests, they will be required to meet a government-mandated education standard.
“The exact level of education will be determined in time, but a minimum standard of a diploma may be the right balance to be less onerous than the requirements for professional advisers.”
To provide certainty that funds can charge advice to a member’s superannuation, Jones said the government would create a broad topic list that would include the appropriate investment options within a fund, retirement projections, drawdown strategies and retirement product recommendations.
Funds will also be allowed to consider the broader circumstances of both members and their households, including debt and assets, their partner’s financial situation, and their eligibility for government support.
“This will ensure that the advice is quality, helpful, and safe,” Jones said.
In another policy position, yet to be explained, the new model will also “allow super funds to provide helpful ‘nudges’ to members to drive greater engagement with superannuation at key life stages”.
“With millions of Australians transitioning to retirement over the next decade and economic challenges predicted to continue, access to financial advice will play a key role in the financial wellbeing of Australians.”
– Anne Fuchs, Australian Retirement Trust executive general manager of advice, guidance and education
Given low member engagement, super funds have long grappled with the problem of reducing sequencing risk for older members while making sure younger members are taking on a healthy amount of risk (i.e. more than is available in a typical balance fund); some funds, including Australian Catholic Super and Vanguard Super solved for it with product and moved to a lifecycle model that automatically moves a member down the risk curve as they age.
The changes have been welcomed by a slew of superannuation funds, which were previously grappling with how to ease millions of members’ transition from accumulation to decumulation without taking on significant regulatory risk.
“This is a transformative announcement for the industry,” said Anne Fuchs, Australian Retirement Trust executive general manager of advice, guidance and education. “As one of Australia’s largest funds we’ve been advocating on behalf of our 2.3 million members to get improved access to professional financial advice and this timeline for draft legislation is an important milestone.
“With millions of Australians transitioning to retirement over the next decade and economic challenges predicted to continue, access to financial advice will play a key role in the financial wellbeing of Australians.”
AustralianSuper chief retirement officer Shawn Blackmore said the changes were a “big win” that would play a key role in allowing the fund to expand its financial guidance offering its three million members.
“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,” Blackmore said. “This is a positive step forward for millions of members who will now be able to access the right level of financial advice they require.”
Not everybody is as convinced. Financial Advice Association of Australia (FAAA) chief Sarah Abood holds “deep concern” about the package and warned that consumers would likely be confused by the different classes of advisers while it risked reopening the door to the vertically-integrated providers that reigned pre-royal commission.
“Rather than fixing the red tape to get consumer costs down, the government appears to be handing back to institutions the right to hire minimally qualified salespeople, who call themselves qualified advisers, to sell their products to consumers,” Abood said.
With reporting by Tahn Sharpe. Parts of this article first appeared on The Inside Adviser.
