While draft legislation for the Quality of Advice Review “quick wins” is imminent, the government is still finalising specific policy details for Stream 2 which is focused on super fund advice.
Speaking at the AFR Super & Wealth Summit by video link from Canberra on Tuesday, Minister for Financial Services Stephen Jones said the intention is to have draft legislation ready in “the near future” that will allow industry to consult on the technical details of the reforms.
“While that’s going on we’ve been engaged in deep consultation around the scope [of advice], the training and competency [of providers], and charging arrangements of advice to be provided within funds,” Jones said.
“We’re well advanced in that project and the government has some policy decisions to make in the near future as well with a view to having some concrete stuff for funds, consumers and others to pore over – and technical and legislative detail to pore over – in the first quarter of next year.”
Picking up responsibility for the QAR after winning the federal election last year, the government launched a consultation on the recommendations in February, followed by the government response in June which would seem reforms implemented via three streams.
While Jones was vocal about the quick wins in Stream 1 – which focused on red tape reduction for advisers – he noted in March that he didn’t expect to “get a slot in the legislative agenda” this year.
“We want to push this along really quickly,” Jones said. “Because you can’t say we’ve got a 5-million-person problem and then be dragging your feet on a big part of the solution of the problem.”
However, despite the sense of urgency communicated by the minister, his comments also dashed some hopes and expectations that the government would release draft legislation for the so-called “quick wins” elements of the QAR in October, based on some of his recent comments.
Super special case
Although the QAR recommended super funds and other institutions should be allowed more regulatory flexibility for giving advice, the government’s decision to only use funds as a test case raised eyebrows and concerns in the advice community.
Super funds – which have been notoriously focused on accumulation – have struggled with member services and decumulation, being called out by Jones, APRA and ASIC for underperforming in their obligations to give members a retirement strategy as required by the Retirement Income Covenant.
“The first thing is to say is it possible for us to celebrate the great achievements of our $3.4 trillion industry and they have been many [and to] celebrate what a great job we have done in growing member wealth, but at the same time as saying much, much more needs to be done,” Jones said.
He noted that after spending much of the year putting funds on notice, he has no intention of repeating that over the next year.
“We’ve assiduously gone through and looked out where government needs to work with industry to ensure that we are making it easier and facilitating the ability of funds to provide greater services to their members and we’ve identified the area of advice and information as being one of them,” Jones said.
He added he was excited about what will “unfold” over the first quarter of next year and while advice is considered an important piece to what super funds need to offer it isn’t “the beginning and end of it.”
“Day to day interactions, responsiveness to claims – all of these things need to be done,” Jones said, adding that data sets, knowledge and information that funds have about their members to need to be improved.
“Moving from that very passive interaction that have had traditionally with their members to a much more active and engaged interaction is critical – we should do it because it’s the right thing to do,” Jones said.
Stream 3 still on the cards
While the government response to the QAR highlighted super funds as a key starting point for an expanded offering of advice, banks and insurers were left on the sidelines with any future inclusion left for Stream 3 of the reforms.
But Jones said it’s “not true” that banks have been locked out of the reform process and that they would benefit of the first tranche of changes.
“The banks will be a beneficiary of that because the red tape reduction exercise and the removal of all those obstacles – principally in the professional advice area but not exclusively there – banks will be a beneficiary in that area,” Jones said.
The comment was likely a reference to the QAR proposal to end the exemption on bank employees receiving a commission for recommending simple products such as opening a bank account, which was accepted by the government as part of Stream 1.
Despite saying last year that he didn’t believe the banks would return to advice, Jones said he’s been “open” with the banks who have supportive of the reform project because they “can see we are tackling the biggest part of the biggest problem in retirement income advice”.
“I’ve been very open with them and said, ‘If you’ve got things you want to do, but you don’t think you can within the existing framework, come to me’,” Jones said.
“We’ll run it through the public interest test and if we don’t think we can do it within the existing framework, let’s – in a very pragmatic way – turn out our way to find ways to do if it matches up with the public interest.”
There will always be urgent tasks to be tackled and prioritizing what to tackle first, second and onwards is a difficult assignment, as competing interests with their own vested ideologies and motives will be a constant blocker to what the REAL issues are and what should be done as a matter of urgency.
For instance, Capital preservation and future proofing losses on an individual and National level that puts in the proper foundations to protect all Australians interests, should be a paramount priority.
What am I pointing at and why is this crucial piece of the economy being pushed to the sidelines, while the Industry suffers it’s biggest losses unnecessarily, to the detriment of all Australians?
It is the Wealth Protection sector, which is the foundation of all Financial Planning that has been hurt the most and should be the number one priority to fix.
One example of how an ideology, turned into legislation can have far reaching impacts.
I was asked to look at a young ladies Insurance coverage as she had been diagnosed with cancer.
She had a toddler, another baby on the way and the family had a very substantial mortgage, which was too high for them to be able to cope with when she needed to stop working as her cancer progressed.
She had a Superannuation policy with $300,000 Life and TPD cover and over $50,000 in her fund, so she knew that if she could no longer work, the Insurance would provide a buffer, or so she thought.
What she was unaware of as her health declined and also her unborn baby who was found to have many medical issues and may not survive the pregnancy, was that the Government had made some improvements to Superannuation and the Insurer was forced to cancel her Insurances, even though she had over fifty thousand dollars in her fund to pay for the covers, which she assumed would continue.
Prioritising what tasks to do when you have been told that you are dying, becomes a choice first of trying to survive and still provide for your family.
What this means is that needing to read thousands of words of legalistic, confusing Investment / Insurance jargon is not a priority, trying to save your baby and your life is.
When I was asked to look at her situation, her Insurances had been cancelled, she fought bravely, though she died and her husband was forced to sell the house and try to raise a toddler and a baby on his own.
This is just one case of how Governments not understanding the importance of wealth protection, can have long lasting negative impacts.
Multiply this by thousands of Australians every year and look at the cost to these people, their families and the economy.
One person who suffers an illness or injury who was earning $80,000 a year income with 4% pay increases, paying taxes and all of a sudden is no longer able to work again, has lost $4,486,794.00 future income over 30 years, which is devastating to them and when multiplied by tens of thousands of people, Australia then faces multi-Billion dollar negative impacts on our economy.
The human impacts are terrible. The economic impacts cannot be reversed for these people or for Australia, as once someone is uninsured, unable to work and uninsurable, then it becomes a roulette wheel, except this time, there are NO winners.
The Government has a chance to make the provision of Advice in the Wealth Protection Industry viable again and it is a simple fix.
What has happened, is it has been pushed back into the too hard basket and EVERY DAY, many peoples lives and Millions of dollars of lost future income is destroyed with no coming back, because other priorities that are not higher priorities in the real world, take precedence.