Few would disagree that a strong regulator is required for a strong superannuation system. But APRA’s myopic focus on cost to members means its $70,000 Christmas party is unlikely to help its reputation.
Good investing requires real sacrifices, according to Oaktree’s Howard Marks, but you can’t expect to be compensated just for making them.
Levy review pushes advice towards big super
Allans lawyer Michelle Levy was commissioned by the previous government to conduct the quality of advice review (QOAR) into financial advice regulation, and released the proposal paper on Monday (August 29). Levy found that the current advice regime is “poorly suited to financial institutions” – including banks and super funds – that might want to or be asked to provide personal advice to customers.
The QOAR proposal paper now opens the door for super funds to consider other circumstances and issues about the member, allowing them to give personal advice, as well as collectively charge fees in order to lower the cost of that advice (which will necessitate tweaks to the sole purpose test).
Russell Mason, superannuation lead at Deloitte, believes he’s in the minority for commending Levy for what she’s done: try and simplify things.
“I’ve always been critical of the rules as they stand now, which is that you look at all the calculators and all the tools, and all they ask you is about your superannuation balance with the fund,” Mason says. “If you’ve got super elsewhere, or your partner has investments or super, it’s not taken into account, as well as your own personal circumstances – rent, mortgage, no mortgage, inheritance… The more information an adviser or a planner has about you, the better the advice they’ll give you.”
If the proposals are followed through, they’ll make the advice propositions of funds “far more attractive”.
“There’s fine tuning to be done, for sure,” Mason says. “But I think the more cost effective we can make advice, and if we can minimise the unnecessary paperwork, it’s going to be good for the consumer and it’s going to be good for the advisers… I think that what Michelle is proposing is a simplification of the industry and that is to be commended.”
Mason will now be commencing work on Deloitte’s own submission, which will back keeping the new regime as simple as Levy seems to want and making sure that funds have the latitude to obtain more non-super information. And he believes that even though the banks will have an easier time of financial advice, they won’t suddenly come rushing back to it.
“They’re a totally controlled and monitored industry; I haven’t got a problem with the banks giving advice as long as there’s full disclosure. But I just wonder whether, having left that financial advice sector, they’ll want to go back to it or whether they can make better money elsewhere,” Mason says. “But people are saying ‘this is terrible, the banks are going to go back in and rip people off’ and I just don’t think the banks will do that.
“To be fair to the banks, they had their fingers burnt very badly by the royal commission; they’ve learnt a lot of lessons; and I don’t think they’re foolish enough to make those same mistakes again. Let’s give the banks some credit – if they move back into this area, it will be a very different proposition.”
And given the banks aren’t rushing back – and the en masse exodus of independent advisers from the industry – super funds now have an opportunity to become the one stop shop for their members financial advice needs.
“I think it opens up room for the super funds, many of which have their own advisers or are aligned with a network of advisers to cost-effectively put forward a solution. For many people, their financial circumstances are fairly straightforward. For most people, if you knew if they were renting or had a mortgage, and how much their partner had in superannuation – you could give them a lot of very valuable advice. It doesn’t mean more complex advice will be needed – just more accurate advice.”
“I think the funds are well placed to do that – most of them are gearing up with analytics, with predictive modelling, to start to do this with members.”
Craig Keary, APAC CEO of digital advice specialist Ignition, says he’s encouraged by the review’s consideration of international advice perspectives and that the collective charging of fees “is a logical thing to do that fits within the purpose and the values of the fund”.
“We’ve really advocated that financial institutions, including super funds, are logical and trusted entities in providing retirement advice to members,” Keary says. “One of the things we feel is that given some of the review’s discussion around helping members with respect to advice at that retirement phase, that looks like it’s going to be quite favourable and we’re really excited about that.”
And the new concept of “good advice” – which will replace the best financial interests’ duty – will allow more advice to be delivered to members digitally, in a “cost-effective, compliant, and safe way”.
“The retirement income covenant has really brought to the surface a lot of focus within superannuation funds on what they’re doing with respect to the retirement income, but also recognising that, in order for that to be enabled, you do need an element of advice and guidance,” Keary says.
“What I do expect to see is more superannuation funds starting to examine how they can provide that advice and guidance at scale; how they can do that in a confident way, and from my perspective that will be around leveraging technology to supplement the work their human advisers are currently doing.”
