The Financial Advice Association Australia (FAAA) has commented on the government’s Friday 21st March afternoon release of the next tranche of draft legislation for the Delivering Better Financial Outcomes reforms.
“We will continue to analyse the draft legislation provided last Friday afternoon, and engage further with our members to finalise our formal submission.
“However on a first read we cannot support it without substantial change. This is a pretty disappointing outcome considering the large amount of time and resources that have been invested over three years to finding ways to deliver high quality financial advice to more Australians,” says Sarah Abood, CEO of the FAAA
“Our single biggest concern in relation to the draft legislation is that it appears to give super trustees the ability to collectively charge for comprehensive retirement advice.
“This is concerning on many levels. Firstly, the cost of collectively charged retirement advice is likely to be very much larger than the cost of collectively charged intra-fund advice. Thus members of these funds will be paying much higher amounts for advice they are not actually receiving – including members who have sought, and paid for, their own personal financial advice but must still pay for the collectively charged advice provided to other members of the fund on top of that.
“The other key area left unstated is who can offer this type of advice - whether that can be offered via the “new class” of adviser, or only via qualified professional financial advisers (many of whom are already working successfully in super funds).
“We have stated elsewhere, and many times, our position that retirement advice should only be offered by licensed professional financial advisers. This type of advice is both complex and high stakes for the consumers involved - because if poor advice is given in this lifestage, it can be extremely difficult for a consumer to recover their financial position when no longer earning income from personal exertion.
“Professional advisers have the education, experience and ethical obligations that enable them to provide this advice safely. If we are saying these are no longer required for such an important facet of consumers’ financial affairs, then this undermines the whole point of professionalising financial advice.
“Also in this section, there doesn’t seem to be any positive obligation on trustees to offer advice in important areas of retirement to consumers such as estate planning, aged care and age pension (including the Home Equity Access Scheme) – although they may choose to do so. These are areas where the super fund has no particular incentive to offer any advice as it does not impact on assets in the fund.
“The draft legislation also provides for super “nudges” – referred to interchangeably as “(general) advice”, “super product advice” and “prompts” in the documentation. It requires trustees to develop a framework that can be used to target groups of members (which can be as small as two members) with ‘advice’ that suits their cohort as a collective - rather than any individual in the cohort.
“While there’s a list of characteristics given that could be used for cohorting (such as age, income, homeowner status, relationships status etc), the reality is that super funds generally don’t hold much of this information on their members. It’s one of the most important, and highest-cost areas, where a professional adviser adds value – by helping a consumer pull together all this information and build a comprehensive picture of where they are at as well as where they want to be.
“Cohorting members based on anything other than age is going to be very difficult for super funds to achieve at present, without the support of a dedicated data collection function – across, for some funds, millions of members – which would presumably be collectively charged.
“Overall, our concern is that these provisions could be used to effectively ‘staple’ a member to their super fund for life, with no trigger for the member to consider whether the current fund is still the right one for them in retirement, and no support for their retirement needs beyond an allocated pension and/or annuity. This is not advice, it is product sales.
“Lastly, turning to the area we all had high hopes for – the simplification of SoAs – sadly this section of the draft legislation is also disappointing. Analysing the requirements for the new “Client Advice Record” or CAR, we haven’t found a material difference between these obligations and those for Statements of Advice, in the legislation. We were hoping for a much lower level of prescription, and greater recognition of professional judgement, as well as indications as to how the other areas of prescription (notably the impact of ASIC interpretation) would be dealt with.
“This draft legislation only covers half of the remaining DBFO reform package issues, and many of the outstanding matters – including the “New Class” of advice, and modernisation of the best interest duty - are also material to this current draft legislation.
“We will be consulting with members on the detail of this package over the course of March and April, in order to finalise our submission by 2 May. We remain committed to ensuring that these reforms can achieve their stated policy intent, to deliver high quality and affordable advice to more Australian consumers,” Ms Abood says.
