Red tape to go in super funds advice review as banks sidelined

With banks sidelined and a shrunken advice sector, industry superannuation funds are sitting pretty in a plan to reform financial advice.

Industry superannuation funds are set for a free kick in a financial advice reform package which will cut down on red tape but will do little to change the deeper problems besetting the sector.

Under a limited adoption of 14 of the 22 proposals put forward in a review by the Coalition-appointed Michelle Levy, industry super funds have got just about everything they wanted. Banks and insurers have been left out in the cold, and any bolder steps towards deregulation have been ignored.

The most significant changes are related to the mundane but expensive aspects of financial planning, where documentation and red tape have become overwhelming.

The much despised Statement of Advice will be dropped along with the onerous ‘safe harbour’ duties checklist.

But in what is an otherwise cautious approach to the problems of the sector, the government had signed off a potential expansion of services that can be offered by industry funds along with a retention of current ‘collective’ charging arrangements where members who don’t receive advice cross-subsidise those that do.

Controversially, it means big super will get to retain more customers while reducing the clear risk that members who have accumulated wealth might leave and seek independent advice elsewhere.

Just now super funds are very limited in the advice they can offer, new arrangements could open their services to include wider issues such as estate planning or the interplay between super income streams and pension access.

At the same time, the government has not allowed an expansion of services by banks or insurers, insisting there needs to be more consultation. Big banks have been examining new ways back into financial planning through low-touch, highly automated services.

For the shrunken ranks of qualified independent financial advisers, the changes will largely mean less regulation costs. The Statement of Advice will be replaced with a ‘fit for purpose’ advice statement. The regular fee renewal forms will be replaced by a single form, and there will be new ‘consent’ forms for issues relating to insurance commissions and Sophisticated Investor status.

The chair of the Financial Advice Association, Sarah Abood, said the industry is very pleased with the first phase of changes announced by the government around regulation reduction. “We are delighted to see a lot of this red tape get dropped,” she explained.

But there is little among the package of reforms – that will now go for legislation -that will make independent financial advice more available to more people.

Independent financial advice as displayed each year in The Australian’s Top Financial Advisors List is increasingly difficult for the everyday investor to access. The cost of advice has risen by around 40 per cent in recent years to be more than $3500 a year.

Financial Services Minister Stephen Jones said superannuation funds must play an ‘expanded and more effective role’. Picture: Christian Gilles/NCA NewsWire

Meanwhile, the wider population of financial advisers has dropped from near 30,000 a decade ago. It is now about 16,000, according to the statement from Assistant Treasurer Minister Stephen Jones.

According to Minister Jones, ‘even if we were to double the number of advisers, it would not be enough.’

In a statement accompanying the release of the reform plan, Minister Jones, downplayed the requirement for financial advice in the wider investment community.

Despite the immense complexities of the tax system and the Centrelink system, the Minister suggested: ‘Most Australians do not have complex financial affairs that require a comprehensive advice plan from an adviser. They just want to know how to make their super work for them.’

Originally published as Red tape to go in super funds advice review as banks sidelined