Big super to get even bigger thanks to advice shake-up

Assistant Treasurer Stephen Jones is moving cautiously with financial advice to remain out of reach for many.

The Quality of Advice Review opens the door for big super funds to offer financial advice.

Assistant Treasurer Stephen Jones has moved cautiously trying to revive the much diminished financial advice sector by peeling back some of the piecemeal regulation that have been piled on since the release of Ripoll Report nearly 15 years ago.

Currently, anyone can ring a bank and get several options for a $1m home loan over the phone, but a super fund or a life insurer are prevented from providing basic fund consolidation, or discussing implications for the pension without undertaking a full service review of the customer.

Assistant Treasurer Stephen Jones. Picture: Brendan Read

While the path to regulation has been paved with good intention, the overcaution spurred on by the Storm Financial scandal and consumers stung by rogue advisers through the years has ultimately put financial services out of reach for many.

Those who need it most can least afford it, while the wealthy are still able to pay.

Jones has taken the easy wins of Michelle Levy’s Quality of Advice Review and sought to make advice slightly more accessible again.

However, the harder work of tackling what constitutes personal advice and good advice or laws around best interests has been kicked down the road. These will make the big difference, but there are worries it would be giving a green light to bad behaviour of the past.

Unsurprisingly, the latest changes put the big industry superannuation funds at the heart of the retirement industry and are set to strengthen their grip on members like never before.

The proposals allow the funds to provide intra-fund advice, or advice around specific retirement settings inside the fund. Jones is also open about whether this advice can be paid directly from their super account, delivering an additional tax incentive for customers to get advice from their super funds.

However, it will simply serve to build even higher barriers around the big four industry funds in providing more detailed advice to members. Life insurers and general insurers will have to wait before changes are pushed through to them.

It is little wonder that the two biggest industry funds AustralianSuper and Queensland’s Australian Retirement Trust joined forces to welcome Jones’ recommendations. Aware Super and UniSuper, round off the top four funds and are also likely to benefit from the advice add on.

The relative cost includes changes to force industry super funds to be more transparent around their financial information. This includes giving members more visibility around the health of their super fund investment portfolios – a move that should give all members more control over their savings – not just those close to retirement.

On the face of it, the proposed changes are likely to help at the margins, rather than deliver a step change. The lighter regulation around advice without watering down protections for consumers will help the likes of AMP return to profitability in its advice division, while suburban advisers will be less burdened by a tighter regulatory leash. The old IOOF which is now called Insignia Financial is also likely to get a boost with it now the biggest adviser home to MLC and ANZ Wealth networks.

These changes are only set to make a marginal impact on financial adviser numbers, which have halved since the Hayne Royal Commission. Even with the reforms, the numbers which are down nearly 10,000 in four years are still not expected to meaningfully recover even over the medium term.

AMP is likely to get a boost from the planned changes. Picture: Hollie Adams

As Jones noted it’s a perverse situation when at the very time that Australians have more savings thanks to their superannuation pile, getting advice on how to make those savings work for them in retirement has never been harder to get.

Indeed, the Levy review found that the average ongoing advice fee has increased more than 40 per cent since the Hayne royal commission. This means that most are up for fees in the thousands of dollars each year for basic financial advice. And it is quality advice that can make a meaningful improvement to the lives of many.

The bulk of the changes are aimed at the five million Australians nearing retirement. However, it still doesn’t answer the question about getting better advice or digital or more robo-advice into the hands of younger people who are facing more complicated financial situations as million-dollar mortgages become more common.

For banks, the changes are likely to open the way to more consolidation across mortgage broking and limited insurance operations to banking products such as selling life insurance to cover mortgages and this continues to be covered by consumer credit insurance rules.

Jones is cool on the idea of banks becoming the hub of advice again. But when it comes to banks and wealth management, the train has well and truly left the station. After spending the best part of the past four years unwinding financial advice and offloading wealth management at a significant cost, banks have very little appetite to get back into the industry.

After being dragged through the courts and royal commissions, banks are cautious around reputational hits. Following years of being promised wealth was a miracle growth engine, they since have waived the white flag after conceding they have little understanding of the risks around financial advice. Indeed, the big four banks have been paying a heavy price for the wealth sins of the past, with billions of dollars sent back to customers in remediation and compensation.

Cbus chief

As expected, Kristian Fok has been named new chief executive of the $83bn building industry-focused fund Cbus. Fok, the long serving chief investment officer, replaces former Goldman Sachs executive Justin Arter who retired as Cbus boss last month.

Fok last month outlined Cbus’ next five year plan to The Australian. This included an aspirational target to reach as much as $200bn in member funds in the next five years, and it plans to increase offshore investment as well as infrastructure and private equity exposure locally. Cbus also wants to bring more funds management oversight in-house. Cbus has a bigger skew to property investment, not only through its indirect investment portfolio but also through Cbus property development arm, which directly invests in building commercial and big-ticket apartments across Australia. However Fok said valuations come down to the individual asset and strength of a building’s cashflow. Cbus updates its valuations quarterly.

Cbus also named former senior Victoria health bureaucrat Marianne Walker as deputy chief executive.

Green accounting

It’s just weeks to go when directors will see the first set of rules around how big business treats green issues in their accounts.

The International Sustainability Standards Board, backed by the London-based international accounting standards board IFRS is set to issue its first two “green accounting” standards by the end of this month. The disclosures will be around general sustainability and climate-related financial disclosures. The Albanese government has said it wants to mandate climate disclosures which will see a new round of corporate disclosure. This also suggests Australia will among the first countries in the world to adopt the new standards.

ASIC chairman Joe Longo. Picture: David Geraghty

What this means is green accounting would be connected to the financial statements and released at the same time. On a basic level it is likely to give investors a snapshot of carbon emissions and environmental footprint with disclosures also having the same weight as financial information.

ASIC chairman Joe Longo said boards need to already be thinking about integrating new standards, processes and control into their own governance structures.

This includes being on top of areas such as sustainability and traditional financial reporting working together. It also requires that marketing and advertising teams work with legal and risk teams to make sure their sustainability-related claims are founded in reality. Directors themselves need to be confident about the information being published by companies, Longo told a CEDA conference in Canberra.

While the looming disclosures look daunting, none of this should be cause for concern, Longo said. “It is simply a reminder that good disclosure depends on good governance”.

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Originally published as Big super to get even bigger thanks to advice shake-up