Albanese government to allow super funds to provide financial advice

Superannuation funds must play an ‘expanded and more effective role’ that serves the needs of their members, Financial Services Minister Stephen Jones says.

Finance Minister Stephen Jones presenting at ICA2023.

The superannuation industry has secured a major win to provide financial advice to its members under reforms backed by Financial Services Minister Stephen Jones with the government holding back from extending reforms to the broader financial sector including banks, insurance, and life insurance companies.

The government’s response to the recommendations of the Quality of Advice Review will see the provision of financial advice simplified in line with the recommendations of the review by Allens’ partner Michelle Levy commissioned last year by the Morrison government.

These include scrapping the need for complex statements of financial advice with simpler documents, consolidating fee documents, and other reforms which Mr Jones said would “remove onerous red tape which adds to the cost of advice with no benefit.”

The proposals to ease restrictions on the provision of financial advice, which were made in response to concerns about the high cost of financial advice, are seen as providing significant potential advantages to industry super funds.

Industry superfunds manage some $1.2 trillion of the total $3.4 trillion superannuation pool, having overtaken the traditional retail funds such as AMP which once dominated the sector and outstripped the $890bn self managed superannuation sector.

Mr Jones said the Federal Government would accept 14 of the 22 recommendations of the Levy report in full or in principle and would consider the other recommendations in more detail before the end of the year.

He said the government had decided to prioritise the greater provision of financial advice in the super sector as this was the “most significant burning deck” in the financial advice sector with five million Australians at or approaching retirement over the next few years with limited access to financial advice.

The government’s response prompted criticism from NSW Liberal Senator Andrew Bragg that the government was using the Levy report to “further empower their vested interests in the major super funds.”

Shadow Treasurer Angus Taylor described the proposals as a “half-baked attempt at a solution which fails to address major challenges to improving access to financial advice for Australians.”

He said the government’s proposals would only narrowly implement the recommendations of the Levy Review and create “an unequal playing field between superannuation funds and the remainder of the financial services sector.”

“This is all the more galling due to the Assistant Treasurer’s decision to announce the changes in a closed-door meeting of superannuation fund executives,” he said.

The life insurance industry called on the government to expand the proposed reforms to cover its sector but the banking industry, whose role in the financial advice sector has diminished in the wake of the Hayne Royal Commission into misconduct in the financial system, did not comment on the proposals.

The Insurance Council of Australia said it “looked forward to further engagement with government” on its response to the recommendations “in the near future.”

The Association of Superannuation Funds of Australia said the government’s proposals would allow super funds to provide more relevant advice to members in the lead up and during retirement, provide more discretion for super fund trustees to charge members for the provision of advice and replace the existing Statement of Advice requirements with fit for purpose advice records which were “more meaningful for consumers.”

The proposals are expected to see an increase in investment in financial advice by super funds in the form of on staff advisers and more technology.

Australia’s two largest super funds, AustralianSuper and the Australian Retirement Trust, which control more than $500 bn in funds, both welcomed the government’s response to the report, describing it as a “positive step forward to improve the quality, affordability and accessibility of financial advice for millions of Australians.”

ART’s chief executive, Bernard Reilly, said the reforms would “empower members to have greater choice in relation to how they access financial advice, whether that be through their super fund, digital channels or external financial advisers.”

AustralianSuper chief executive Paul Schroder said the reforms would improve retirement outcomes for millions of Australians, making financial advice easier and cheaper for members.

The Financial Services Council welcomed the government’s response to the Levy Review with recommendations designed to remove “costly red tape imposed on financial advisers.”

FSC chief executive Blake Briggs said financial advice was currently weighed down by “unnecessary and costly regulation and documentation” which could be simplified to improve the quality of advice to consumers.

But he warns that the proposals to reduce the restrictions on the provision of advice by super funds, ahead of any similar changes to the broader financial sector, “could result in too many Australians missing out on quality financial advice at key stages of their life.”

“Superannuation funds will play an important role in providing retirement advice, (but), if the government narrowly implements the reforms, they could fail to attract the industry investment which is necessary to deliver quality advice to the millions of Australians which would benefit from it at different stages of their life,” he said.

Announcing the proposals, Mr Jones said super funds were “well suited to safely meeting the needs of their members.”

“They are already governed by strong obligations to act in the best financial interests of members and act for the sole purpose of providing retirement benefits to members,” he said.

The government will also move to fulfill its election commitment to allow experienced advisers with a clean record to continue practising without the need to undertake further education.

Mr Jones said the government felt it was urgent to fix the current problem of the decline in financial advisers in Australia with increasing regulations leading to an exodus of some 10,000 advisers from the sector since 2019.

He said the government was not ruling out any of the recommendations in the Levy report and would finalise its position on the remaining recommendations before the end of the year.

Mr Jones said the government was focussing on the superannuation sector because of its importance in providing retirement income for ordinary Australians.

“The success of superannuation cannot be understated,” he said.

While millions of Australians were retiring with more savings in superannuation than ever before, with the average Australian now retiring with around $200,000 in superannuation.

But he said “advice on how to make those savings work for them in retirement has never been harder to get.”

He said the Quality of Advice review found that the median ongoing advice fee had increased by 41 per cent between 2018 and 2021.

“While the reforms have been effective in protecting Australians from bad advice, it has also shielded them from helpful advice,” he said.

“A lack of advice can quickly become the means of significant consumer harm.”

“Getting more professional advisors, qualified and into the practice is important.”

Ms Levy, who has been pushing the government to implement the reforms, was travelling interstate on holidays and was not available for comment yesterday.

Additional reporting by Paulina Duran

Finance Minister Stephen Jones presenting at ICA2023 in Sydney.

Superannuation funds will be allowed to provide financial advice under changes by the Albanese government.

Financial Advice Association of Australia boss Sarah Abood.

Originally published as Albanese government to allow super funds to provide financial advice