The Financial Advice Association Australia has argued retirement advice is too complex to be collectively charged, pushing back on the Delivering Better Financial Outcomes legislation released by Treasury.
Additionally, the association argued that retirement advice should not be allowed to be provided by the new class of adviser, which it instead dubbed the “new class of provider” having previously argued the advice label shouldn’t be used at all.
The government released draft legislation in March for Tranche 2 of the reforms, which introduced targeted superannuation prompts, or nudges, and outlined the scope of advice super funds can collectively charge members for.
In its submission to Treasury, the association said it supported the provision of greater certainty to super funds and their members around what can be collectively charged and the defining of what types of advice are included and excluded.
“While we support the legislative measures to provide certainty, we firmly oppose the proposal in the additional consultation paper on advice through superannuation to expand the scope of collective charging to include retirement planning advice,” the submission said.
The association strongly recommended all advice around retirement and the transition to retirement be excluded from any kind of simple advice as retirement is too complex.
“Whilst the firm of retirement planning advice that may be provided under these proposals is restricted to the sale of retirement income products and associated strategies, it is nonetheless going to be complex and costly to provide,” the submission said.
The association also opposed the enabling of retirement advice through collective charging as members should not be expected to pay for the provision of retirement advice to other members.
“Collective charging for retirement advice should not be permitted, because it will require many members to pay for a service which they have no potential to benefit from for many years,” the submission said.
The FAAA criticised the collective charging provision of the draft legislation at the time of release with CEO Sarah Abood calling it “concerning on many levels”.
Nudge and prompt
The association also recommended stronger guardrails to make sure members are fully aware of the implications of nudges from super funds who are due to gain more flexibility in the proposed legislation. While it supported the principle of nudges, the FAAA had concerns about whether the individual member’s circumstances were being considered.
“It should be mandatory that a super nudge include a statement that the prompt does not consider the member’s individual circumstances, and that they should seek personal financial advice from a professional financial adviser before taking action,” the submission said.
The association argued more consultation was needed in regard to retirement prompts particularly.
The submission recommended funds should be obligated to disclose both that there may be a more appropriate product available and recommend professional financial advice to the member.
Additionally, the submission said advised clients should be excluded from nudges or that there should be a statement recommending the member disregard the nudge if they have received financial advice.
You got a draft CAR
The association criticised the replacement of Statements of Advice with the Client Advice Record and argued the level of prescription and requirements of the CAR was essentially the same.
The submission said it would be beneficial to see a draft version of the CAR to demonstrate how the record is supposed to work and show how additional obligations will not be required.
The association criticised the term “Client Advice Record” as “problematic”, due to its similarity to the Customer Advice Record – the name of the advice records prior to the 2001 Financial Services Reform Act – and the abbreviation of Corporate Authorised Representatives also being a CAR.
“Given the likely cost and effort involved in changing systems, templates, and training materials that reference what the advice document is called, we recommend that it would be better to retain the current SOA term,” the submission said.
The association said the introduction of the CAR restricted advisers from being able to use their professional judgement as they would still have to adhere to extensive prescription.
At the time the draft legislation was released, the FAAA said the reform was “disappointing” as there was no “material difference” between the SOA and the CAR.
“We were hoping for a much lower level of prescription and greater recognition of professional judgement,” Abood said.
The industry has weighed in on the CAR reform, with licensee heads split on whether it is a positive step forward.
WT Financial Group managing director Keith Cullen said it was “disappointing”, echoing the FAAA’s sentiment.
However, Entireti CEO Neil Younger called the CAR a progressive step “worth supporting” and IFM Securities principal Lionel Rodrigues described it as much more client-centric and in turn a “big step forward”.
