Super funds to choose how they charge for advice

Labor’s second tranche of its financial advice reform package will leave it up to super funds to choose how they charge members for advice.

Assistant Treasurer Stephen Jones says diploma-qualified advisers will be allowed to give guidance on issues such as retirement planning and insurance, but not SMSFs.

Millions of Australians could soon be paying for personal financial advice through their super fund – even if they choose not to access it – as Labor pushes ahead with the final phase of its advice reform package that will see ­diploma-qualified advisers give guidance on issues such as retirement planning and insurance.

The government has also backtracked on its stance to allow funds to only employ and charge for a so-called new class of adviser, opening the door for financial advice groups to compete on the lower-cost, more basic advice ­offering.

Labor’s second tranche of its Delivering Better Financial Outcomes package, aimed at giving Australians better access to quality and affordable financial advice, will leave it up to funds to choose whether they charge all members a collective fee or a direct fee for advice provided by the new class of adviser.

“This will allow a greater range of institutions to employ the new class of adviser, delivering neutrality across different advice models and expanding the supply of quality advice available to consumers,” Assistant Treasurer Stephen Jones said.

The new class of adviser will not be able to charge ongoing fees or receive commissions.

If the package is legislated, and Mr Jones has said he wants this done in the current term, it gives the green light to super funds to hike their administration fees in the name of employing advisers to provide personal advice.

Funds are already spending hundreds of millions of dollars each year on administration expenses: the nation’s biggest super fund, AustralianSuper, spent $470m of members’ funds on admin costs in 2023, while peer Australian Retirement Trust forked out $650m.

The key questions of who would pay for the advice and which entities would be allowed to employ the new class of adviser were the big sticking points in the drawn-out consultation between the government and super funds, financial advisers and insurers, according to industry sources.

Industry funds such as ­AustralianSuper and Australian Retirement Trust were reportedly adamant that fees for both the advice and advisers should be collectively shared across all members and charged through broad administrative fees, and that only funds should be able to employ the new advisers.

This would lock out other participants, including financial advice licensees.

Mr Jones said the decision to allow licensees to hire the lesser-qualified advisers was, in part, to create a career path for this cohort to become fully qualified. The number of fully qualified advisers operating in the market has dropped from 30,000 a few years ago to around 16,000.

“In relation to financial planning licensees, one argument I considered was about ensuring there’s a level playing field across the entire industry. A second one, which I’m more moved by, was ensuring we have a career path for the next generation of fin­ancial planners that we don’t currently have,” Mr Jones said.

With this key stumbling block to the reform package removed, the government will look to legislate the changes in coming weeks.

The Financial Services Council welcomed the government’s move to expand who could employ the new class of adviser.

“Allowing independent fin­ancial advice businesses to offer advice through the new class of adviser and providing the flexibility to charge one-off fees for this advice, in addition to collective charging which some superannuation funds may adopt, supports competitive neutrality and choice for consumers,” FSC CEO Blake Briggs said.

The minister dismissed suggestions that opening up advice to super funds would be a potential money-maker for the industry. “It won’t be a profitmaking centre for them. This will be about providing a service to their members, frankly, that the retirement income covenant currently requires them to provide, but the law actually, through lots of indirect means, makes it almost impossible for them to do,” Mr Jones said.

“There is no free source of money. So whether it’s a fund or an individual firm employing these people, the cost of that has to be paid for somehow.”

A third option for funds would be to outsource financial advice offerings, he added.

As well as creating a new class of adviser to provide more simple advice, the government’s second tranche of reforms aims to modernise the best interest duty; remove safe harbour provisions; take out complex statements of advice; and clarify what advice topics can be paid for through superannuation.

The new reforms will also introduce “nudges” so super funds can increase engagement with members at key decision points, ­including in the lead-up to retirement.

Unlike fully qualified advisers who need a degree, the new class of adviser, yet to be given a formal name, will need only to be diploma-qualified. They will be restricted to providing advice on products issued by prudentially regulated entities and prevented from providing advice on more complex topics, such as establishing an SMSF or advising on a managed investment scheme.

Originally published as Super funds to choose how they charge for advice