The Labor government will pursue legislation to allow super funds to “nudge” their members to seek financial advice, as part of their efforts to fulfil their Retirement Income Covenant obligations.
The measure came as a part of the five-pronged proposals in the second tranche of Delivering Better Financial Outcomes (DBFO) package, announced by Minister for Financial Services Stephen Jones on Tuesday. The draft legislation has yet to be released.
The package came just two weeks after Treasurer Jim Chalmers unveiled a four-point plan to reform retirement, which will work in tandem with DBFO.
Jones said he intended to secure passage of the legislation “this Parliament” despite the unknown but likely limited number of sitting weeks before the next election. In recent days, speculation has fallen once again on the probability of a May election, after Prime Minister Anthony Albanese spoke of plans to introduce legislation in February, which could give the DBFO legislation a window of opportunity, albeit narrow.
‘Not in the game’
In a briefing to select members of the press, attended by Investment Magazine, the minister said the nudges will occur at or near key life stages, enabling members to consider the need for advice or a change in personal circumstances.
“There is an argument to say we actually don’t need to legislate to make this happen, because the Retirement Income Covenant requires funds to do things like this,” Jones said. “But funds aren’t doing things like this because they think the current law doesn’t enable them to do it.”
He added: “If they’re [funds] are not in this game [financial advice] they’re not in the game.”
The nudges could be about, for example, encouraging member accounts which have stopped receiving contributions to switch from accumulation to the pension phase. The method is also referred to as “soft compulsion” by some in the sector.
“It’s [superannuation] not well set up, and funds have not done a good job to date, of dealing with the retirement side,” Jones said.
“Because of the demographics, they’re going to have to.
“The existing settings will mean Australians either won’t get the advice they need, or they’ll go to a dangerous and unsafe source for that advice. So that’s what’s driving those changes.”
‘No free source of money’
Apart from nudges, the package also proposed to create a new class of advisers which super funds, advice licensees, banks and insurers will be free to employ.
The group was controversially dubbed “qualified advisers” previously, but Jones said he had not yet decided on permanent nomenclature.
These advisers will “be restricted to providing advice on products issued by prudentially regulated entities”, and cannot advise on complex topics, such as establishing a SMSF or advising on a managed investment scheme. The regulation will prescribe a specific “blacklist” of topics and establish a clear line of distinction between the new class of advisers and professional advisers.
The legislation will also clarify which advice topics can be paid for through superannuation with a “black-and-white list”, whether collectively or individually paid for, Jones said.
“This includes a list of broader personal household circumstances that can be considered,” he said.
But ultimately, it is up to trustees to decide which charging framework they want to put in place – be it charging members individually, spreading that across the fund as administration costs, or simply referring members to external advisers, Jones said.
“We are not going to have a situation where you can be charging for business as usual…the best interest duty covers all of these things,” Jones said.
“But I do want to make the point, whether you’re a for-profit or a not-for-profit fund, there’s no free source of money.”
‘Hell of a lot less than $6k’
Some critics have opposed the measure allowing collective charging, likening it to the fees-for-no-service misconduct highlighted by the Hayne royal commission.
But Jones said the specifics of the charging mechanisms would not be “baked into legislation” but likely fall into ASIC’s remit as regulatory guidance.
“But I can say this – a hell of a lot less than the $6000 dollars you would initially pay our for your initial consultation for a piece of comprehensive financial advice,” Jones said.
Jones defended the decision, first reported by Investment Magazine sister publication Professional Planner, to hold more recent consultation on the second tranche behind closed doors with handpicked industry associations and subject them to non-disclosure agreements.
He revealed that confidentiality was in fact requested by some participants in the roundtable meetings, so they could discuss commercially sensitive matters freely with Treasury officials.
“With no disrespect to all of you [journalists] who do a really important job, we didn’t want to read about thigs that we might have been talking about but weren’t seriously considering,” he said.
Editor’s note: Conexus Financial will bring debate over advice reform into the public domain at the inaugural Professional Planner Advice Policy Summit in Canberra in February 2025. Have your say in the future direction of the advice ecosystem by registering for the summit here.
