Millions of Australians will be able to tap their super fund for more financial advice about their retirement and superannuation, under changes being announced by the federal government, but they will have to pay for the benefit.
Assistant Treasurer Stephen Jones said reforms introduced after the banking royal commission, which revealed horrific stories about “fees for no service”, had led to a situation where Australians could not access advice from their super fund about their retirement options.
After months of industry consultations, Mr Jones said he would change the law in this term of parliament to create a new category of diploma-qualified financial advisers who could give some limited financial advice.
“There’s about 5 million Australians either at or approaching retirement, and they’re not getting access to affordable, reliable advice,” Mr Jones told ABC News.
“That’s the nut we’ve got to crack. How do we ensure the vast majority of Australians who have thousands, not millions, of dollars in their [retirement[ savings can get some sensible, scaled advice which is appropriate to their circumstances at an affordable price.”
Assistant Treasurer Stephen Jones has announced changes to financial advice regulations. (ABC News: Mark Moore.)
The law will be changed to clarify the rules on what advice topics can be paid for through superannuation and will allow super funds to “nudge” consumers at stages of their life when they may need greater advice.
The super funds will have the choice to charge members directly — through a direct fee on each member seeking advice — or collectively, by placing administrative fees on all super fund members. They will also be able to outsource the advice if they choose.
Asked why Australians should trust superannuation funds at a time when Australia’s $4 trillion superannuation industry faced a crackdown from corporate watchdog ASIC after damaging allegations about Cbus taking more than a year to pay thousands of death and disability claims, Mr Jones said he had already put super funds on notice that they needed to lift their game.
He said these government changes would hopefully make it easier for super funds to give their members better service.
“We’re putting a lot of pressure on the funds to improve their service arrangements,” Mr Jones said.
“Let’s be frank: A lot of funds have been pretty ordinary [in how they treat members].
“The funds have got to dramatically shift to become service delivery organisations as well, and they’re a long way off the pace.
“These laws are about removing some of the obstacles to them [super funds] being good service delivery operations, but there’s a lot more that needs to be done in other areas, including the payment of death benefits and disability benefits and insurance claims.
“We’re putting a lot of pressure, we’re holding the feet of the funds to the fire on all of these issues, because we think Australians deserve access to great retirement savings, but also excellent service from the funds that they belong to.”
No cap on fees under the legislation
Mr Jones noted research showing four in five Australians aged 45 to 54 needed financial advice but could not afford it, while 74 per cent of Australians aged 18 to 34 had unmet advice needs.
He said without affordable advice, Australians would either get no advice — which would lead to lower standards of living — or seek advice from dodgy sources and scammers.
“They’re going to the internet, they’re going to Instagram, they’re going to TikTok and all these other unsafe places to get really critical advice,” he said.
“They [Australians] are losing millions of dollars because they’re not making their best decisions, or they’re making catastrophically bad decisions and falling for fraudsters and scammers.”
Some stakeholders fear the quality of advice from the super funds could be poor and that the fees charged could be too high, but the assistant treasurer said the changes were designed to make getting advice more affordable.
Mr Jones said the new class of advisers would not be permitted to charge ongoing fees or receive commissions. However, he said fees would not be capped under the legislation.
He said he did not think this would be a profit-making centre for super funds, and current restrictions under the law would prevent funds from spending funds in a way that was not in the best interests of their members.
He said he would ask prudential regulator APRA to set limits if needed.
“There will be the capacity for the regulators to put out guidance on the feature, the fee-charging arrangements, or for those matters to be dealt with in the regulations,” Mr Jones said.
Certain advice will be ‘blacklisted’
Mr Jones said he hoped to pass legislation this term that would put limitations on what advice this new class of advisers with diplomas could give.
Super funds will be restricted to providing advice on products issued by prudentially regulated entities.
The funds will also be prevented from providing advice on more complex topics, such as managed investment schemes or establishing a self-managed superannuation fund, through a blacklist to be prescribed in the regulations.
“They [consumers] can’t use their superannuation funds to go off and get advice on investing in cryptocurrency or the bond market; it would have to be in or in relation to their superannuation,” Mr Jones said.
The new class of adviser will be limited to customer-initiated engagement for new customers, ensuring they cannot be used to cold-call customers or offer unsolicited advice.
Licensees will also be subject to additional monitoring and supervision obligations — with civil penalties attached — to ensure that advisers only provide advice within their expertise and authorisation.
Under the previous Future of Financial Advice (FOFA) reforms, there was a specific legal requirement to act in the best interests of clients when providing personal advice (“the best interests duty”).
Mr Jones said the best interests duty would be updated to give greater legal clarity about what funds could advise on.
And the government would remove the “safe harbour steps”, which are various steps an adviser has to go through before they can offer consumers advice.
Mr Jones said these tests were well-intentioned but were being interpreted to mean financial advice must always be comprehensive, even if that was not in the client’s interests.
“At the moment, you can ring your super fund up and ask them some very basic questions about what you’ve got in your fund, but what you can’t ask is more detailed questions about how many how you manage your retirement strategy,” Mr Jones said.
“These are common and everyday problems that Australians are encountering, and we’ve got to have a better way for dealing with it.”
He said there were currently about 16,000 financial advisers in Australia, and it would be good to double that amount.
“We could easily double the number of financial advisers in Australia and still not have enough to meet the need, which is why we’ve got to look at a range of different solutions,” Mr Jones said.
“I’m hoping these changes we make will attract people back into the financial advice industry and give them a pathway to get … both the diploma and the professional qualifications they need to practise.”
Mr Jones said he had consulted widely with stakeholders and that some participants signed non-disclosure agreements that they would not leak the information before it was announced.
