Super advice changes ring alarm bells

Advice reforms will see super funds recommend only their own products, regardless of whether these serve members’ best interests, consumer advocates warn.

Super Consumers Australia has warned of ‘considerable consumer harm’ from proposed advice reforms.

Super Consumers Australia has warned of “considerable consumer harm” from proposed reforms that will allow superannuation funds to offer personal financial advice.

In its submission on the second stage of the Delivering Better Financial Outcomes reforms being considered by the federal government, the consumer advocacy group argued super funds will provide conflicted advice, only recommending their own products regardless of whether these serve members’ best interests.

“The proposed ‘allowed list’ includes advice about retirement products and drawing down from those retirement products. This is not retirement advice – this is product advice,” SCA said in the submission seen by The Australian. The full submission has not yet been publicly released.

“Funds cannot provide advice about retirement topics outside of super, and they will not provide advice recommending a member take up a product offered by another fund. That means they are only providing advice about their own retirement products,” the advocacy group said.

The limited retirement product options available to members add to the risks for consumers seeking advice, SCA warned.

“Since 69 per cent of the funds that offer open retirement products only offer one product (usually an account-based pension), the only possible recommendation a member could get through this model is to move into that one product, which might not be appropriate for every member. That’s not advice – that’s sales.”

The reforms as they stand fall short of delivering meaningful help for Australians planning for retirement, SCA said.

“If we had a system in place like we do for MySuper products to ensure that all retirement products were high quality, there would be significantly less consumer harm in funds advising a client to take up their product over a competitor’s — but we don’t have that system,” the advocacy group said.

“There is considerable consumer harm in a member getting conflicted advice to move into a poorly performing, expensive product – particularly given that it is impossible to get out of some retirement products after the cooling-off period (typically products that have longevity protection).”

SCA chief executive Xavier O’Halloran said reforms should prioritise better products for super members and not just the availability of advice.

“Australians deserve a system that delivers safe, high-quality retirement outcomes, not just advice that steers them into the only product a fund has to sell,” Mr O’Halloran said.

“We’re calling on the government to step up and make the retirement system safer by design, so that no one is left behind, whether or not they get financial advice.”

Super Consumers Australia CEO Xavier O’Halloran.

Mr O’Halloran also urged robust safeguards, including consumer testing of prompts and tighter definitions around what constitutes a product ‘recommendation’.

“Client advice records are meant to help people understand their financial advice,” Mr O’Halloran said.

“But unless they’re in plain English, concise, and consumer-tested, they risk becoming just another compliance checkbox.”

The reforms, two years in the making, are becoming more urgent as waves of baby boomers push into retirement and the number of qualified financial advisers hovers at around 16,000, half of what it was a decade ago.

The first leg of the advice reforms sailed through parliament last year with little controversy. These clarified the legal basis for funds to charge members for financial advice and streamlining fee consent.

But the second leg, the reforms that would allow super funds to employ lesser-qualified advisers to dole out advice while charging all members for the privilege, was put on hold by the election.

It is now back in prospect after new Financial Services Minister Daniel Mulino met with key industry figures to assess the tensions between big super and advisers. Super funds are already gearing up for the changes as they prepare to bulk up their advice teams, while the advice industry has also raised concerns with the current proposed legislation.

“We believe there’s material room for improvement in it. These are important issues and getting it right will have significant consequences,” FAAA policy and advocacy general manager Phil Anderson said.

“We’re trying to get a solution that is in the best interests of Australian consumers of financial advice for the long term. We don’t want to do something and then find it needs to be tinkered with in a few years time, and then again in another five years time. It’s important to get it right.”

The push to hand advice powers to the bulging super industry comes as the sector reels from scandal after scandal and clear failings in even basic member services. These include lengthy delays in paying out death and disability claims, duplicating member accounts and, most recently, a cyber attack that exposed inadequate cyber security measures across the board.

Originally published as Super advice changes ring alarm bells