Cutting red tape to allow super funds to provide a broader scope of financial advice could result in unintended consequences and could open floodgates that would allow “free” financial advice to resurface in the industry, advisers have warned.
As part of the government response to the Quality of Advice Review, Minister for Financial Services Stephen Jones accepted the recommendation to expand the provision of personal advice by super funds to their members as a quick way to grow the advice industry amid a stark talent shortage.
Speaking at an adviser breakfast hosted by the Financial Advice Association in Hobart, Jones said the move could bolster diversity and competition within the financial services sector following on from a flurry of fund consolidations.
“I want to start safe,” Jones said. “Super funds are registered, statutory entities with fiduciary duties to their members. They could help us take the first step to grow the industry in a controlled environment.”
Jones added the intrafund advice expansion will still be up for consultation.
“We want to get the details right, and we have a clear direction of where we’re going,” Jones said. “After a period of confusion… I think we can see light at the end of the tunnel.”
But allowing super funds to fill the void could spark a flurry of undercutting as consumers naturally tend to seek out the cheapest advice in the market, a financial adviser told the minister at the breakfast briefing.
An adviser stood up and warned Jones that many in the profession fear the move could have unintended consequences, such as funds introducing collective charging. Recommendation 6 in the QAR final report suggested “restrictions on collective charging of fees should be removed” for super funds.
“All of us here are thinking about the potential of having to deal with this change,” the adviser said.
“We don’t want to create two tiers of advice, because otherwise people will want to go to the cheapest point in the market.”
FAAA chief executive Sarah Abood agreed, pointing to member concerns that super funds could start offering “free advice”.
“Of course, that advice is not free, it is being paid for by the other members who aren’t necessarily benefitting from that advice,” Abood said.
“There would need to be guardrails in place to ensure we don’t end up recreating a set of problems again. [QAR lead] Michelle Levy’s view was that there would be a natural limit to the amount that trustees would be willing to collectively charge because the cost of providing advice goes onto their administrative fee.”
Take it to the limit
Minister Jones conceded that collective charging would require very clear limits, currently being reviewed before reforms are introduced by the end of this calendar year.
“I don’t think we can just say that funds will do the right thing,” Jones said. “Most of them will, some of them won’t, and I don’t want to take this step into the wild given the history in this area.”
Jones said he doesn’t want to be the minister that sets up the conditions that lead to another royal commission. “I don’t want that on my CV,” Jones told the room.
“We want to take a step back and take a pragmatic approach. We are spending 90 per cent of our efforts looking at 90 per cent of the problems. Phase one is retirement income advice and new entry pathways into the profession.”
Minister Jones also touched on the Consumer Data Right legislation, which was supposed to automate data exchange and speed up interactions with financial entities, such as Centrelink and the ATO.
“It hasn’t gone spectacularly well to date,” Jones said. “There are huge opportunities for improvements to make life easier for consumers, which is being explored.”
Sarah Abood responded with: “That would be music to our ears.”
As part of the government QAR response, Jones confirmed moves to improve the Statement of Advice process, as well as removing safe harbour steps.
At the breakfast, Jones said he is working to understand how the broad regulatory ecosystem would react to removing sections of the SOA while still ensuring the document provides value.
“Everyone agrees that the SOA is more likely to be read by a judge in a courtroom than a consumer,” Jones said. “It’s about finding solutions that protect consumers.”
Abood admitted that fear drives a lot of the current inclusions in these documents.
“The requirements that were quite simple and straightforward have mutated once they got out into the wild, so they don’t bear much relationship to what was originally intended,” she said.