A ban on advice fee deductions for super switching, requiring trustees to compensate members for losses, ending ‘but for’ determinations from the CSLR, and higher restrictions on lead generation are among the suite of reforms proposed by the government.
Treasury released three concurrent consultations on Wednesday morning, covering superannuation member protections and trustee obligations, the sustainability of the CSLR and stricter enforcement of lead generation services.
Many of the proposals follow on from what was teased by Minister for Financial Services Daniel Mulino towards the end of last year to address the aftermath of the $1 billion Shield and First Guardian.
The consultation covering super trustee member protections would prevent trustees from deducting advice fees for advisers where an Statement of Advice has recommended a switch, with a requirement for any related fee to be paid for out of pocket.
ASIC would also be given the power to compel trustees to remediate members in the case of fraud or theft, though cases of poor investment performance would still be exempt.
There would also be codified due diligence requirements, mandatory holding limits for investment options and increased penalties for misconduct.
A potential five-day cooling-off period for switching super funds would be introduced, although the government is canvassing industry views over whether this should cover all inter-fund switching or only cover switches to “high-risk” APRA-regulated products or SMSFs.
| Shortlist of super trustee member protections recommendations | |
| Proposal 1: Strengthening governance requirements for Platform Trustees | |
| Option 1.1: | Mandatory holding limits for certain investment options |
| Option 1.2: | Codified due diligence requirements |
| Option 1.3: | Limiting certain conflicted arrangements and payments |
| Option 1.4: | Restricting certain trustee operating models |
| Proposal 2: Increase penalties under the SIS Act | |
| Option 2.1: | Double maximum penalties under the SIS Act |
| Option 2.2: | Increase penalties under the SIS Act to better align with the Corporations
Act 2001 |
| Proposal 3: Introduce waiting period for inter-fund superannuation switches | |
| Option 3.1: | Apply the waiting period to all inter-fund superannuation switches |
| Option 3.2: | Waiting period applies to certain categories of inter-fund switches |
| Proposal 4: Limit fee deductions for switching-related financial advice | |
| Option 4.1: | Prohibit advice-fee deductions for switching-relating financial advice |
| Option 4.2: | Codification of obligations on receiving funds to review advice fee
deductions |
| Proposal 5: Requiring Platform Trustees to compensate members for eligible losses | |
| Option 5.1: | Obligation on Platform Trustees to compensate members for eligible losses |
| Option 5.2: | Allow ASIC to direct trustees to commence remediation programs |
| Source: Treasury. | |
End of ‘but for’
The CSLR consultation has proposed either flat out ending the use of ‘but for’ claims – which calculate missed returns that were foregone because of poor advice – from AFCA determinations that go to the CSLR or by prescribing a benchmark that could be used for ‘but for’ claims.
A potential benchmark could be, for example and under consideration, the consumer price index or the 10-year Australian government bond rate.
The extension of the CSLR’s subrogation rights would allow funds to be pursued and recovered which would be kept by the operator to offset the costs of the scheme in future periods.
“For example, if an AFCA determination awards $300,000 and the CSLR pays $150,000, the CSLR would be entitled to pursue recovery for the full $300,000,” the paper said.
“This option is intended to reinforce the CSLR’s last resort character by reducing parallel recovery pathways and enabling the CSLR to stand in the claimant’s position for full recovery of the entire AFCA determination once compensation has been paid.”
The consultation also addresses asset shifting by corporate groups who move assets out of a subsidiary which is then put into voluntary administration to avoid paying liabilities, as was the case with Dixon Advisory.
The consultation also aims to add certainty to the funding mechanism for the CSLR special levy when the annual remediation required exceeds the $20 million subsector cap.
Furthermore, the paper canvasses adding MISs and SMSFs into the scheme.
SMSFs could fall under an opt-in or opt-out mechanism, allowing members to choose whether to participate in the levying framework, with non-participation resulting in loss of eligibility for CSLR compensation.
The other option would be to exclude all SMSFs from eligibility for CSLR compensation, although they would still have access to AFCA’s dispute resolution processes until the last resort stage.
In the case of levying MISs, the paper suggests options for including them in special levies using either a simpler broad-based approach covering all schemes or a risk-based approach that excludes “low-risk” MISs from the levy.
A second CSLR and consumer protection roundtable will be held in the coming weeks, the minister said.
| Reform options to support ongoing sustainability of the CSLR |
| Proposal 1: Enabling CSLR to deduct payments from compensation |
| Proposal 2: Expanding CSLR subrogation rights
– Expand subrogation to the full AFCA determination amount – Extend subrogation to additional recovery sources |
| Proposal 3: Technical improvements (various changes to compensation or levy formulas) |
| Proposal 4: Revising the treatment of counterfactual loss (‘but for’ claims) for CSLR-eligible financial advice complaints
– Limit CSLR-eligible compensation to capital losses only – Prescribing the use of a counterfactual benchmark |
| Proposal 5: Embedding greater certainty within the special levy framework |
| Proposal 6: Considering responses to the role of SMSF losses in pressure on the CSLR
– Include a subset of SMSFs within the CSLR Special levy framework – Exclude SMSFs from CSLR eligibility |
| Proposal 7: Facilitating levying of managed investment scheme (MIS) related losses
– Broad‑based levy on all MISs – Risk informed levy approaches |
| Proposal 8: Improving recovery of unpaid AFCA determinations within corporate groups
– Refinements to existing frameworks that deter asset shifting – Related-entity liability mechanism |
| Source: Treasury. |
Financial Advice Association Australia CEO Sarah Abood said the association will “carefully” review the government’s proposals in coming weeks and engage with members on a response.
“Bi-partisan support for proportionate, effective reforms that help victims, prevent misconduct and hold those responsible accountable, is crucial for investor confidence and market efficiency,” Abood said.
Super Consumers Australia CEO Xavier O’Halloran said the government should back reforms that tackle predatory practices and drop proposals that shift harm onto victims.
“The proposal to remove the ‘but for test’ is deeply unfair and undermines a basic tenet that people should be compensated for losses that flow from misconduct,” O’Halloran said.
“The right way to address sustainability is to stop harm from occurring in the first place and make it easier to ensure those responsible pay. Cutting off compensation to victims who have seen their retirement savings destroyed is a counter productive policy outcome.”
Curb your lead generation
Treasury’s consultation on lead generation aims to protect consumers from high-pressure sales and cold calling by adding stricter requirements to the operators of lead generation services, strengthening the rules on unsolicited selling, addressing conflicted payment structures and disrupting harmful or misleading advertising.
The rules would change anti-hawking laws to close loopholes exempted the unsolicited sale of a financial service, it would also require lead generators to be licensed and introduce lead generation services into the Design and Distribution Obligations.
ASIC could also be given powers that would lower the threshold to launch stop orders against advertisements, where the regulator believes an ad could result in consumer harm.
The reforms may also prohibit the remuneration of lead generation activities which could “reasonably influence” the advice provided to a retail client.
ASIC has already published a list of known lead generators and licensees that have used them, although inclusion on the list isn’t an accusation of wrongdoing, but only to warn consumers.
| Shortlist of reforms to curb lead generation activity | |
| Reform 1: Enhance accountability for the conduct of lead generators | |
| Option a: | Bring prescribed lead generation activities into the regulatory framework |
| Option b: | Banning unlicensed communication to consumers about superannuation |
| Option c: | Enhance accountability of licensees for the conduct of lead generators |
| Option d: | Clarify and extend the application of DDO to lead generation |
| Reform 2: Extend anti-hawking requirements | |
| Option a: | Enhance the conditions for consent |
| Option b: | Limit the exemption for financial advice |
| Reform 3: Target remuneration structures that may incentivise poor conduct | |
| Option a: | Capture lead generators under the conflicted remuneration ban |
| Option b: | Clarify or expand the scope of ‘benefits’ captured under the conflicted remuneration ban |
| Reform 4: Target advertisements for earlier intervention | |
| Option a: | Require superannuation advertisements to display AFSL numbers |
| Option b: | Expand ASIC’s stop order power to take down financial advertisements |
| Source: Treasury. | |
There will be a six-week consultation period concluding by 22 May 2026, and the government is already consulting on changes to MISs and professional indemnity insurance.
