While red tape reduction will be a breath of fresh air for the advice profession, the Government doesn’t expect it will improve access to advice and instead it will be up to super funds to help give members more advice.
Speaking in Melbourne on the last leg of the QAR roadshow hosted by Conexus Financial in partnership with Allianz Retire+, Minister for Financial Services Stephen Jones pointed to five million Australians near or at retirement that need advice, with fewer than 16,000 advisers to service them.
With advisers averaging roughly 100-150 clients each, they would have to double or triple their client base to cover the advice gap identified by Jones.
While the Minister sees the benefit of appeasing advisers by making their lives easier, he thinks the advice review alone doesn’t solve the accessibility issue because red tape reduction doesn’t guarantee any incentive for advice practices to lower fees and take on new clients.
For this reason, Jones didn’t want to make any “heroic claims” that the red tape reduction proposals will improve consumer affordability.
“If we do this regulatory efficiency piece and, as a result of that, your financial advice fee will halve – I’m not going to [say that] because I don’t think it’s going to happen for the majority of Australians,” Jones said.
“Even if it did it would be a nice surprise, but not one I’m going to promise. There’s the potential for significant savings and I hope if professional advisers realise those then some of them will be passed on, but I’m not going to make any reckless claim about that.”
The Minister is happy to remove some of the key red tape obstacles he has noted during the week on Monday in Sydney and Tuesday in Brisbane. However, his expectation is it won’t solve the affordability and accessibility issue the advice review set out to accomplish.
“At the very least within the advice profession we are making it easier and simpler for people to provide advice, that the regulatory obstacles which aren’t providing any consumer protection are removed and you can get on and do the job you need to do to provide the advice to your client group,” Jones said.
“But nobody should think that if we just do that, then that’s job done.”
And that’s why super funds will be involved
Although Jones hasn’t expressed support for advice review lead Michelle Levy’s proposal to allow non-relevant providers who work for a relevant provider give advice, he believes super funds do have a role to play in giving advice.
“Not all those five million need comprehensive, complex advice,” Jones said. “Many of them, their financial affairs are pretty simple, straightforward, so there has to be a role for institutions to provide information,” he said.
Asked whether he supported super funds being the major supplier of advice and information, based on the number of individuals served, Jones said they’re already providing large-scale advice.
He added that he supported the Retirement Income Covenant, introduced by the last Government, as being capable of helping the advice piece, but the regulatory ecosystem around it isn’t fit for purpose.
“We put an obligation on [super funds] on the one hand but make it almost impossible for them to meet that obligation in terms of providing information and advice to their members,” Jones said referring to the gaps he identified in the covenant.
“That seems perverse to me, so we need to get that sorted. There is a role for registered superannuation entities to provide information and advice. Frankly, they’re providing a different sort of information and advice to their members than licensed financial planners are to theirs.”
Additionally, Jones said super funds can be an attractive training ground for new advisers, whether they stay working with funds for the long term or become holistic advisers not employed by a super fund.
“We’re not going to double the number of financial planners over the next decade,” Jones said.
“If we had another training ground which could be an entry point into the licensed financial planning profession, that would definitely accelerate the number of people who started in one place and ended up in another.”
Jones said there is a role for “nudges” in the area of advice in super funds, which can operate alongside the defaults that happen in accumulation.
“The MySuper system operates on defaults, which operate for the entirety of somebody’s accumulation phase, but has nothing to say post-accumulation,” Jones said.
“That’s worth thinking about but I am not at that point yet. But I’m definitely at the point of saying we should be doing some nudging.”
Pointing to an example of what a “nudge” should look like, he used the “extraordinary number” of people with inactive accounts over the age of 65.
“That’s good for the Government – we’re getting 15 per cent on their earnings in that account, but it’s not good for them if the only reason they haven’t flipped over to pension phase is because they didn’t know it existed and they didn’t know they could get 0 per cent as opposed to 15 per cent,” Jones said.
Levy’s proposals not a legislative blueprint
Over the three days Jones has expressed his frustration at a regulatory regime that has tried to solve the same problem “three or four times” only to end up adding redundant rules and red tape.
Jones said while he appreciates the work Levy had done on the report, he added “it’s not a blueprint for legislation”.
“If we wanted to convert [the report] into a legislative framework and we decided today that was what the government wanted to do, it would probably be 12 months before the legislation hit Parliament,” Jones said.
“It’s important to you that there is that period of time because with the best will in the world you might draft up a set of laws which intended to implement those decisions and you’d probably get some stuff wrong.”
The process would involve a draft legislation that would be followed by a stakeholder consultation that would take several months before getting a bill in front of Parliament.
“For that drafting of legislation piece you have around 12 months between making a decision if you wanted to do it as a wholesale lock for major reform,” Jones said.
“Which is why I look at this and say there’s some no brainers and obvious stuff in here. Some of it doesn’t require legislation, some of it can be done by other means. Let’s move on the stuff that is obvious and easy. Doesn’t mean you give up on the others, but let’s just try and sequence those these things.”
For this reason, he said attempting a wholesale implementation of the review’s recommendations would be “the slowest train to a destination”.
“We would be here in December next year without this stuff underway,” Jones said.