Trying to fit financial product advice within the existing regulatory framework has not benefitted superannuation fund members, according to UNSW’s Pamela Hanrahan, and if consumers are to get real and accessible choice support a framework needs to be put up outside the bounds of Chapter 7 of the Corporations Act.
It’s a radical solution, she admits, but the academic who advised Hayne at the Royal Commission sees a product advice structure that’s external to the current regulatory arrangement as the only way past the logjam of misinformation, disengagement and apathy that exists within fund member cohorts.
“My challenge, as somebody who has spent a lot of time thinking about the regulation of financial product advice, is how do we stop just wishing that funds or somebody else can assist people with those choices within the existing regulatory framework?” Hanrahan asked during a Conexus Institute webinar as part of its Big Ideas series.
“At what point do we call time on that – 21 years down the track – and say the existing regulatory framework for financial product advice can’t be made fit for purpose?”
For the masses that don’t want or can’t afford traditional financial advice, or are put off by intra-fund advice, there needs to be a standardised solution, Hanrahan argued.
“I’m in favour of a more radical solution,” she said. “I don’t use the words advice or intra-fund advice or anything like that, I talk about choice support.”
The academic said she wanted a new framework that enables the provision of ‘choice support’ to be completely carved out of the financial product advice regime in Chapter 7 of the Corporations Act – as long as it’s provided by someone under some degree of oversight, which could be a financial adviser or an APRA-regulated fund.
The point, she explained, is that there needs to be more affordable and accessible solutions available to retirees. Stripped back and standardised versions of things like fact finds would be a part of the solution, she explained, as would the co-operation of fintech providers.
“The benefit of doing that is not only is it really efficient, but you can de-risk that process in such a way that you don’t need all of the cumbersome financial product advice and regulation around it,” she said.
Joining Hanrahan on the panel to discuss the retirement system was Conexus Institute director David Bell, Retirement Income Review panellist Deborah Ralston and associate professor Geoff Warren from the Australian National University.
Ralston said engagement within super was too low, but when you start giving members things like retirement income projections it picks up dramatically. While regulated financial advice has tremendous value, there is a gulf between this and total non-engagement with retirement that needs to be filled.
“We shouldn’t need to go to too much one-on-one advice, I one hundred per cent agree with Pamela,” she said.
The ten or fifteen per cent that use financial advice will continue to do so, Hanrahan said, but there needs to be a serviceable way for the other 90 per cent to access support.
“We’re trying to work out how you can efficiently deliver that kind of choice support to the majority of people, and I really think it’s time for us to say… we’ve tried for 20 years or so to be able to provide this within the framework of Chapter 7, maybe we need to have a process where it doesn’t require the level of regulation that we’ve traditionally had.”
She noted the Westpac case, where the bank was charged with providing unlicensed financial advice to members, as an example of the kind of trouble institutions can get into when skirting the line of what’s allowable under the current regime.
The challenge, she said, is persuading government to permit a solution outside of the financial product advice regime in Chapter 7. “And we’ve never really had that debate before,” she said.
There is, however, movement on the regulatory front that may dovetail with Hanrahan’s proposal. The Australian Law Reform Commission is currently reviewing the current financial services regime, and has already flagged the possibility of excising Chapter 7 out of the Act completely.