Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
The ‘safer sandbox’: Government doubles down on super path to increased advice access
The Albanese government’s decision to eschew Quality of Advice Review lead Michelle Levy’s proposal for banks and insurers to re-enter advice, in favour of limiting the scope to superannuation providers, was made with risk limitation in mind according to financial services minister and assistant Treasurer Steven Jones.
Super funds provide a much safer arena for the expansion of advice, the minister explained at a Financial Services Council breakfast Monday morning, due to the way they operate and the oversight placed on trustees.
“If we can’t get it right in retirement we’ve got no hope in any of the other areas because of those particular arrangements that exist inside superannuation,” Jones said. “Different prudential arrangements, different fiduciary duties, different statutory [obligations]…”
Banks, managed investment schemes and insurance companies have different arrangements in place, he said, which makes super a “much safer sandbox” with which to introduce more financial advice delivery. “There’s more existing protections in place, more prudential oversight,” he added.
The fact that super is well-funded and so embedded in the Australian economy was also a contributing factor in the decision, Jones explained. Arming funds with advice provision tackles “the biggest part of the biggest problem,” he said.
What shape the financial advice provided by super funds will take is still in the air, however. When Colonial First State head of superannuation Kelly Power questioned the minister on how far the new powers would go beyond the current intrafund advice settings, the Minister provided a bullish, yet careful response.
“If all I wanted to do was fiddle around with the clarity or the definition of intrafund advice I would have done that,” he said.
Power pointed out that if the advice super funds were allowed to provide is going to plug the gap for consumers, it needs to encompass more than just the members’ superannuation.
“I don’t think just fiddling with intrafund advice is going to get us to where we need to be. People make decisions… based on residual mortgages, they’ll make decisions based around… ‘well, I’m retiring now, but my partner is not retiring for another five years, so how does her income affect my access to, for example, a government pension? How does any income stream that I set up interact with a government pension or other pension associated benefits?’ So all of those things live in a person’s mind, or should be in a person’s mind, when they’re making some of those critical decisions.”
Giving trustees the power to provide advice does entail a “theoretical risk”, the minister admitted. “But you’ve always got to ask yourself… compared to what?”
“I think everyone in this room would agree that capacity to compensate, where something’s gone wrong, there’s always going to be greater in a [Responsible Service Entity], that it is where something’s gone wrong with an individual financial plan,” Jones said.
“We can’t design an absolutely fool proof system in this area, but what we can do is ensure that the whole ecosystem has the levels of safety nets in place.”
