Super funds have emerged as major winners of the Albanese government’s financial advice reforms, with the path now laid for the industry to roll out cheaper retirement advice to members, while banks watch from the sidelines.
Financial services minister Daniel Mulino last week confirmed the government would press ahead with long-awaited financial advice reforms, including allowing super funds to employ lower-qualified financial advisers, as part of a years-long push to make financial advice more accessible to Middle Australia.
The advice provided by the so-called new class of adviser will be less regulated than advice provided by fully qualified financial advisers, Dr Mulino said.
“The new class of adviser will see super funds and life insurance, with appropriate safeguards, be able to give people really meaningful advice to make sure they get better outcomes,” he said.
The rollout of these lower-qualified advisers will be limited to APRA-regulated super funds and insurers for at least the first three years, with banks excluded for the time being.
“We believe if it’s tightly defined, that will provide people with answers to really important questions, but in a targeted way that will not encroach on the kinds of advice that advisers do,” Dr Mulino said.
“Limiting it to APRA for the first three years is a way of just making sure that we have a really clear understanding of how that new class of adviser is rolling out. It is going to be less regulated than full-blown financial advice, which is a really critical part of our system.”
The major funds have been heaping pressure on the federal government all year to push ahead with the advice reforms, as they battle to retain members approaching retirement.
Package of reforms
Dr Mulino was speaking at the National Press Club where he unveiled a package of consumer protection and financial advice reforms in the wake of the Shield Master Fund and First Guardian Master Fund collapses, which cost more than 11,000 Australians $1bn in super savings.
As part of the reforms, the government will crack down on cold calling, with unlicensed real-time lead generation no longer allowed, alongside a tightening of anti-hawking rules that until now have allowed advisers to cold call prospective clients.
The government is also taking aim at gaping holes in the trustee-for-hire model exposed by Shield and First Guardian.
APRA will be given the power to set capital requirements on super trustees so they can compensate investors if there are fund losses and the trustee is found to have breached its obligations.
Dr Mulino confirmed this measure was directed at trustees for hire.
“This is an additional set of requirements …(on) super trustees offering services through platforms in particular, motivated by the fact that if we look at what happened after Shield and First Guardian, Macquarie and Netwealth stepped up, and people got their capital back.
“That was a good outcome, and it also meant that parties with a direct involvement were the ones who were stumping up, and it wasn’t then having to go to the Compensation Scheme of Last Resort and be spread across the whole sector.
“What we’re saying is that where you’re operating a platform, you’ve got to demonstrate that you have the wherewithal to back up your obligations.”
Unlike Macquarie and Netwealth, super trustees Equity Trustees and Diversa, also caught up in the Shield and First Guardian scandal, operate an outsourced model that sees them take on the trustee obligations for an independent super platform.
Equity Trustees and Diversa have so far declined to compensate Shield and First Guardian investors, with both now in court fighting allegations brought by the corporate regulator that they failed to do due diligence on the now collapsed funds.
Super lobby welcomes reforms
The super lobby welcomed the reforms aimed at making financial advice cheaper and more accessible.
“Everyday Australians are increasingly excluded from financial advice by high fees and dwindling adviser numbers. Financial advisers play a crucial role, but there are not enough of them,” Association of Superannuation Funds of Australia chief executive Mary Delahunty said.
“Thanks to progress announced today, working Australians will find it simpler and more affordable to access basic financial advice through their super funds,” she said.
The Financial Services Council backed reforms that would force trustees to compensate consumers for financial loss caused by trustee governance failures.
“A compensation obligation on super funds if their due diligence process fail and cause to consumer losses is a significant and targeted consumer protection reform,” FSC CEO Blake Briggs said.
“Consumers can have faith that superannuation trustees stand behind their investment governance processes and compensate consumers for losses when they have fallen short of their existing legal duties.“
Dr Mulino also flagged plans for mandatory education requirements for anyone wanting to establish a self-managed super fund, while the Australian Taxation Office and the Australian Securities & Investments Commission will have greater information-sharing powers to detect unusual patterns in super switching.
The ATO also will be able to pause rollovers from APRA-regulated funds to SMSFs if fraud is detected, he said.
“Requiring people to learn what running your own super fund involves before they take on that responsibility means people will be making a genuinely informed choice to open an SMSF,” ASFA’s Delahunty said.
“And giving the ATO the power to pause a rollover where fraud is suspected is a sensible safeguard for the exact moments when people are most vulnerable to bad actors.”
As part of the new reforms, the government will move to shore up a last-resort compensation scheme for victims of financial misconduct, getting rid of the controversial “but for” provision that sees compensates victims of financial misconduct compensated not only for actual losses but also hypothetical losses.
Self-managed super funds will be required to tip into the Compensation Scheme of Last Resort pot, but likely not until 2028 due to because of law reforms required.
This article first appeared in The Australian as Advice reforms a win for big super, external trustees targeted.
