Industry super funds call for relaxation of financial advice regulations
Industry super funds say restrictive regulations governing the kinds of financial advice they are allowed to provide must be relaxed or their members who are planning for retirement will be left worse off.
But the proposal to give super funds more freedom when providing basic financial advice to their members has been questioned by a consumer advocacy group, which says issues around access to cost-effective financial advice should be addressed by an expansion of existing government services.
Industry super funds are asking for more scope to offer financial advice to their members.Credit:Erin Jonasson
A review into the quality of financial advice, which was recommended by the Hayne banking royal commission, is being undertaken by Treasury. It will look at the quality, affordability and accessibility of financial advice in Australia.
In its submission to the review, Industry Super Australia said the rules around intra-fund advice should be relaxed to allow them to provide affordable advice at scale for members who don’t have complex financial needs, without them having to resort to expensive comprehensive advice.
“The limited scope of the advice funds can provide under an intra-fund model restricts its usefulness for members – particularly those close to retirement,” the lobby group said in its submission.
Intra-fund advice - advice provided by a super fund where the cost is collectively charged across the fund’s membership - is bound by rules set by ASIC. It is limited to simple advice on contributions, investment options and insurance within the fund.
Industry Super Australia said it wants to be able to advise retirees on issues such as how much money they need to retire, how long it will last, and how they can maximise savings when it comes to the age pension.
“Most Australians don’t need costly comprehensive advice, just a simple plan and tips that will leave them better off - like paying off any debt and converting their super into an income stream which, along with the age pension, will help boost their standard of living in retirement,” Industry Super Australia deputy chief executive Matt Linden said.
“However, existing laws and regulations - particularly around the use of general advice or guidance, technology and calculators - are standing in the way of members getting the information they need in a cost-effective way.”
The Association of Superannuation Funds Australia is also calling for an expansion of intra-fund advice programs. In its submission, it says intra-fund advice should be changed so that members can be advised in relation to their fund’s retirement income products and on matters such as age pension entitlements.
ASFA chief executive Martin Fahy said he was focused on increasing education and awareness, which included clarity around language when it comes to financial advice. The association wants intra-fund advice to simply be called “fund advice”.
“Somebody once said to me, if you think you understand financial advice, you clearly don’t,” he said. “It’s a complicated area … I think what [the review] might do is bring some clarity, and some well-needed tidying up to what’s there.”
It comes as the industry prepares for the retirement income covenant to take effect on July 1, which will require super funds to have a documented strategy to improve outcomes for their members in retirement.
Xavier O’Halloran, the director of advocacy group Super Consumers Australia, said while super funds play an important role in helping people plan for retirement, he believes there are issues with expanding intra-fund advice.
“Some of the restrictions are there for a reason. They are set up to protect consumers from getting bad or inappropriate advice,” he said.
“As people reach retirement, they have to make decisions like should they pay off their home loan or should they keep their money invested in superannuation. Obviously, if they pay off their home loan, that’s money that’s taken out of the superannuation environment, the fund can’t charge fees on it anymore, so they’ve got a conflict in that type of scenario.
“This is a kind of vertical integration problem - if all the advice and the product is coming from the same company, consumers aren’t going to get the best guidance on what the right products are for them.”
Instead, O’Halloran said Australia should look to the UK and expand ASIC’s Money Smart service, which could connect people to basic, free financial advice.
A spokesman for Assistant Treasurer Stephen Jones said: “Consistent with its statements prior to the election, the government has no current intention to change settings on intra-fund advice.
“The Assistant Treasurer will be meeting with the Independent Reviewer this week to receive an update on the progress of the Quality of Advice Review.”
Treasury’s financial advice review is due to report to government by December and is being chaired by lawyer Michelle Levy.