The industry has reacted with dismay to the tabling of a bill that fails to remedy several perceived shortcomings of an exposure draft bill released late last year as part of the government’s consultation on its response to the Quality of Advice Review.
Assistant Minister for Competition, Charities and Treasury Andrew Leigh tabled the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 on Wednesday.
Leigh said the first tranche of the Delivering Better Financial Outcomes package, the government’s response to the QAR, “amends the Superannuation Industry Supervision Act and Income Tax Assessment Act to provide a clear legal basis for the payment of advice fees from superannuation and associated tax consequences”.
However, the bill leaves unchanged provisions relating to how superannuation trustees can deduct financial advice fees from members’ accounts.
There is concern that the measures place too heavy a burden on super fund trustees to make sure advice meets a number of specific conditions before they can charge advice fees to a member’s account. This has raised concerns that funds might find it too costly and administratively cumbersome to offer advice to members as a result, an outcome what would run counter to the government’s stated objective of making advice more accessible and affordable for more Australians.
In relation to Recommendation 7 of QAR – addressing how superannuation trustees charge individual members from their superannuation accounts for financial advice – the exposure draft bill set out a list of conditions that a trustee must ensure are met before a member’s account can be charged. Those conditions remained unchanged in the bill tabled on Wednesday.
In practice, a checklist of conditions would mean trustees of a superannuation fund must review every piece of advice delivered to a member to ensure it complies with the law.
For example, a requirement that the advice provided be “wholly or partly about the member’s interest in the fund” before a member’s account can be charged raises the prospect that a trustee would have to examine advice provided to every member in close detail to determine what proportion of the advice relates to the member’s fund, and therefore what proportion of an advice fee can be paid from a member’s account.
Submissions to Treasury called for changes that would substantially streamline super fund advice delivery without compromising member protections or allowing unfettered access to account balances to pay for advice.
In a statement, Financial Services Council chief executive Blake Briggs said the bill will “entrench unnecessary obligations on superannuation trustees that would be costly to maintain and act against the delivery of affordable financial advice”.
“Industry encourages the Assistant Treasurer [Stephen Jones] to make the most of the opportunity to remove onerous duplication and red tape that has contributed to advice becoming unaffordable for millions of Australian consumers,” it said.
“We support the government’s aim of ensuring more Australians can access financial advice through their superannuation, but despite the many positives in the bill we are concerned that it will entrench unnecessary obligations on superannuation trustees that would be costly to maintain and act against the delivery of affordable financial advice.”
Briggs called on the government “to continue to consult through parliamentary processes to address industry’s concerns and to ensure financial advice is more affordable for Australian consumers”.
Submissions on the exposure draft bill included suggestions to allow trustees to rely on a statement by either the fund member themselves or by the Australian financial service licensee providing the advice to the member that the advice (or what proportion of the advice) relates to the member’s interest in the super fund.
Those submissions argued the wording of the exposure draft bill risked failing the test of meeting the QAR objectives of improving the affordability and accessibility of advice by discouraging some super funds from providing advice at all. The bill in its current form fails the same test for the same reasons.
Leigh said on Wednesday in Parliament that the amendments to the Corporations Act “support improved access to affordable financial advice for millions of Australians by cutting onerous red tape that adds to the cost of advice with no benefit to consumers”.
However, if the concerns raised in submissions by industry are realised, the bill will increase the likelihood that the cost to super funds will dissuade them from providing advice at all.
Flowing on from that, it is unclear how super funds can fully meet discharge their Retirement Income Covenant and Retirement Income Strategy obligations without incorporating advice, either provided by the funds themselves or via referral arrangements to external advice providers.
Funds are not obligated to provide advice as part of their RIC or RIS strategies, but a letter issued jointly by APRA and ASIC suggests funds should “consider whether and how to offer financial product advice (either general advice or personal advice) to members”.
Where a fund can’t or doesn’t want to deliver advice itself, ASIC and APRA suggest it should “consider alternatives such as referring members to externally provided financial advice services (i.e. provided by a different entity), and ensuring adequate controls are in place to oversee the deductions from a member’s superannuation account to pay for such advice”.
The government’s amendments to the Corporations Act aim to streamline ongoing fee renewal and consent requirements into a single form, provide more flexibility for advice providers over how Financial Services Guide requirements can be met, simplify the rules banning conflicted remuneration, and introduce new consumer consent requirements for certain insurance commissions.
The FSC said the bill will “implement positive changes supported by the industry”, but said it is concerned that “the current drafting of the government’s bill… risks missing the opportunity to remove costly regulatory duplication that currently requires both financial advisers and superannuation trustees to approve advice fee deductions from superannuation accounts”.
