One of the challenges of the government’s new Retirement Income Covenant for trustees will be finding the balance between providing retirement income solutions without falling foul of the rules regarding the provision of financial advice, according to KPMG’s superannuation partner, Cecilia Storniolo.
Under the new law, superannuation funds will have to provide a retirement income strategy to older Australians from July 1 under rules embedded in the Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021.
The covenant has had widespread and bipartisan support, but opposition spokesperson for financial services and superannuation, Stephen Jones, warned in a Conexus Financial webcast recently that the move would fail unless the industry could get the “advice piece right”.
It’s a sentiment that Storniolo echoes.
A challenging system
Storniolo maintains the Covenant, in the way it had been drafted, didn’t contemplate the whole system.
“We know that the Retirement Covenant doesn’t tackle the question of advice,” Storniolo tells Investment Magazine.
The question of advice was a big one; among the challenges were the fact that there are so many layers of regulation, as well as the expense involved.
“Advice legislation in its current form is not working effectively if the objective is to enable more Australians to access affordable advice and to support decisions such as retirement investment decisions,” Storniolo said.
“We recently did a study on the cost of advice and it highlights that it actually costs far more currently to produce advice than advisers are actually able to charge. Which means that only those who can afford advice, get advice.
“What does advice need to look like? That’s the million-dollar question.”
Role of super funds
In answering the question as to whether superfunds should be providing advice or not, Storniolo said it very much depended on the individual trustee and whether it has the risk tolerance to enter into it.
“Without a doubt, there needs to be greater consideration of the advice equation for members, because some products may be too complex,” she said.
“And if the product is too complex, is it the right product for that cohort?”