Good public policy begins with an accurate diagnosis.
If we misidentify the cause of a problem, we almost invariably prescribe the wrong remedy. That is why ASIC Report 833 Safeguarding super: How well are platform trustees monitoring risks to retirement savings? deserves careful attention – not simply for what it says, but for how it might be used in the next round of financial advice reform.
REP 833 raises important questions about how superannuation trustees oversee advice fee deductions. Weak controls should be strengthened. Poor governance should be addressed. Where members have suffered harm, regulators should act decisively.
None of that should be controversial. But the report also raises a broader question that deserves equal attention.
Has ASIC identified the real problem?
Having been deeply involved in the debate over section 99FA of the Superannuation Industry (Supervision) Act and Michelle Levy’s Recommendation 7 of the Quality of Advice Review (which clarifies the legal basis for superannuation trustees to deduct financial advice fees directly from a member’s account), I don’t believe REP 833 primarily demonstrates a failure of trustees.
Instead, it demonstrates the inevitable consequences of leaving legislative reform unfinished.
When the Delivering Better Financial Outcomes legislation was before Parliament in 2024, many of us supported the Government’s objective of implementing Recommendation 7. At the same time, we warned Treasury, the Senate Economics Committee and Members of Parliament that the proposed drafting risked creating exactly the outcome we are now seeing.
We warned that trustees would increasingly become quasi-regulators of licensed advice businesses. We warned that responsibilities already carried by AFSL holders would be duplicated by trustees. We warned that the additional supervision would increase costs without materially improving consumer protection.
Most importantly, we warned that those costs would ultimately be borne by Australian consumers seeking financial advice.
Unfortunately, REP 833 suggests those concerns were well founded.
Evidence matters
Every instance of consumer harm matters. Every inappropriate advice fee deduction deserves remediation.
Every adviser or licensee who breaches their obligations should be held accountable. Every trustee with weak governance should improve it.
But there is an important distinction between identifying individual failures and concluding that an entire regulatory framework has failed.
As regulators move from anecdotal examples to assertions of systemic problems, the evidentiary threshold should rise accordingly. That is not a criticism of enforcement. It is simply good public policy.
Individual failures should trigger investigation. Systemic conclusions should require systemic evidence.
Otherwise, isolated examples risk becoming the catalyst for permanent new layers of regulation that every consumer ultimately pays for.
The real issue is duplicated accountability
REP 833 repeatedly encourages trustees to undertake more monitoring, more sampling, more document reviews and greater scrutiny of advice fee deductions.
Viewed individually, each of those suggestions appears reasonable. Taken together, however, they expose a much bigger policy problem.
Australia has effectively created two supervisory regimes examining exactly the same conduct. A consumer engages an adviser. That adviser operates under an AFSL. The AFSL supervises the adviser.
The AFSL is responsible for compliance with the Corporations Act. The AFSL is responsible for satisfying the best interests duty. The AFSL is responsible for ensuring advice fees satisfy the sole purpose test where superannuation is involved.
And if something goes wrong, the AFSL is responsible for remediating the client.
Importantly, advice fees can only be paid to an AFSL holder. The trustee never receives the advice fee. The trustee does not supervise the adviser. The trustee does not authorise the advice.
The trustee does not determine whether the advice satisfies the best interests duty. Nor ultimately does the trustee refund inappropriate advice fees.
The AFSL does.
That raises an obvious question: if accountability already rests with the licensed entity that controls the advice and receives the fee, why should trustees increasingly be expected to duplicate that supervision?
Hayne focused on consent. Levy focused on responsibility.
The Hayne royal commission’s concern was straightforward. Consumers should never pay advice fees they did not authorise. That led to annual fee consent requirements.
It did not recommend creating a parallel supervisory regime requiring trustees to effectively second-guess advice already delivered under Australia’s licensing framework.
Michelle Levy recognised the problem immediately. The Quality of Advice Review concluded that section 99FA blurred responsibility between trustees and licensed advice businesses.
Recommendation 7 of the review proposed a simple solution. A trustee should be entitled to pay an advice fee on the direction of the member. The trustee would retain appropriate governance and audit processes.
But responsibility for whether the advice justified the fee would remain where it naturally belongs, with the AFSL that authorised the advice and ultimately received the payment.
That reflects a simple regulatory principle: accountability should sit with the party that controls the conduct.
Parliament started the job. It didn’t finish it.
To the government’s credit, industry concerns about the original drafting of section 99FA were heard.
Many of us argued that the original proposal would unintentionally require trustees to review and effectively approve every piece of advice before paying an advice fee.
That would have created a shadow ban on advice fees through administration rather than legislation.
The government amended the bill and that was the right decision, but while the most problematic drafting was removed, the underlying duplication of responsibility remained.
Trustees were left with a residual supervisory role sitting awkwardly beside responsibilities already imposed on AFSLs. REP 833 is, in many respects, the predictable consequence.
Don’t let REP 833 become an argument against member choice
Treasury is currently consulting on proposals that would prohibit Australians from paying for financial advice from their superannuation where that advice recommends changing superannuation funds. This is why the timing of REP 833 is so significant.
Those proposals are presented as consumer protection measures. But there is a real risk that REP 833 becomes cited as justification for reforms that extend well beyond anything the report itself recommends.
That would be a mistake.
If an adviser breaches the law, enforce the law. If an AFSL fails in its obligations, hold the AFSL accountable. If trustees fail to discharge their responsibilities, require them to improve.
But none of those failures logically leads to the conclusion that Australians should lose the ability to fund legitimate financial advice from their own superannuation simply because that advice concludes another fund is better suited to their circumstances.
The conduct that caused Shield and First Guardian was not that members switched funds. It was that some participants allegedly breached existing laws.
Restricting lawful advice because some participants allegedly acted unlawfully is not targeted regulation, it’s regulatory overreach.
Even more concerning is the practical consequence. Under current proposals, advice recommending that a member remain in their existing fund could continue to be funded from superannuation.
Advice recommending that the same member move to a more suitable fund could not.
That is not a neutral outcome. It creates a structural bias against member mobility.
Whether intended or not, it makes it harder for Australians to obtain professional advice precisely when that advice concludes they should exercise one of the fundamental rights within Australia’s superannuation system: the right to choose where their retirement savings are invested.
Good regulation should protect consumers from misconduct. It should never protect incumbents from competition.
Finish the reform
REP 833 contains worthwhile observations. Trustees should strengthen weak controls. Governance should continue to improve. Risk indicators should be monitored intelligently.
None of that is in dispute, but REP 833 also demonstrates why Michelle Levy’s Recommendation 7 remains unfinished business.
Consumers should authorise advice fees. Trustees should be entitled to rely on that direction.
Responsibility for ensuring those fees comply with the law should rest squarely with the AFSL that authorised the advice, supervised the adviser and ultimately received the payment.
That is where accountability already sits. It is where accountability belongs. Australia has spent the better part of a decade making financial advice safer. The next challenge is making it more accessible.
Those objectives are not in conflict if responsibility is allocated clearly and regulation is targeted at the real source of consumer harm.
But if policymakers start using isolated examples and duplicated supervision as justification for restricting members’ ability to obtain and fund lawful financial advice, Australia will move further away from affordable advice, not closer to it.
Michelle Levy recognised that. Parliament should now finish the job she started.
Keith Cullen is founder and managing director of WT Financial Group.
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