The government has clarified the financial advice topics super funds can collectively charge members for, and the nudges funds can give members to help them make better decisions about their super, including at retirement, in pared-back draft legislation released on Friday.
The government has split Tranche 2 of its Delivering Better Financial outcomes reforms into two parts and will consult further with industry on part one draft legislation, before combining parts one and two into a single package. The latest consultation closes on 2 May.
As foreshadowed by Investment Magazine, the government has once again kicked the can of the knottier DBFO reforms down the road. Part two of Tranche 2 will deal with reforming the Best Interests Duty to remove the safe harbour steps, and help facilitate the introduction of a so-called new class of adviser that will underpin the delivery of more financial advice by super funds, life insurers, advice licensees and other institutions. No date was given for the release of these measures.
Outgoing Minister for Financial Services Stephen Jones told the Professional Planner Advice Policy Summit at Old Parliament House, Canberra, last month that the drafting of the modified BID provisions were proving“tricky”. Attendees at the summit nominated the scope of advice provided by the new class of adviser as the “most contentious” element of the DBFO reforms.
Part one of Tranche 2 provides clarity on what topics can be collectively charged for; and gives funds more flexibility to nudge members into greater engagement and making better decisions about their super. It also abolishes the statement of advice document and replaces it with a shorter and clearer client advice record.
Expanding the scope of collective charging will allow funds to deliver broader advice to more members without crossing over into the sphere of comprehensive advice and the rules and regulations that go along with it.
Explanatory material released on Friday set out both an approved advice topics list, and a list of the member’s circumstances that can be considered when giving advice. It also sets out a list of “disallowed” topics, which includes the purchase or disposal of assets held outside of superannuation; the purchase or disposal of financial products held outside of superannuation; holistic financial planning; and estate and tax planning.
| Allowed topics list | |
| Topic | Examples of intended coverage |
| Superannuation contributions | Advice about making concessional/non-concessional contributions, spousal contribution or splitting and other relevant contribution options such as work test, downsizer, salary sacrifice. |
| Investment options | Advice regarding changing investment options within the fund based on characteristics or goals of the member. |
| Insurance held through superannuation | Advice on the extent of cover provided and different types of cover available through the member’s superannuation fund. |
| Retirement income | Advice about planning for retirement through superannuation; transition to retirement products; retirement income solutions including products, drawdown strategies, lump sum withdrawals, and longevity protection. |
| Source: Treasury | |
| Allowed circumstances list | |
| Circumstances which can be considered | Examples of intended coverage |
| Cashflow and income of the member’s household | Collecting cashflow and income information to inform advice on the adequacy of superannuation income in retirement or to assist in product choice. |
| Assets and interests held outside of super by the member’s household | Property; cash; insurance; securities. |
| Financial position of the member’s spouse | Spouse income; spouse superannuation; spouse eligibility for government services; spouse assets and debts. |
| Debts and liabilities of the member’s household | Mortgage; loans. |
| Eligibility for government services | Eligibility for Age Pension, Carers Allowance or other government support payments or support services. |
| Source: Treasury | |
An explanatory memorandum released on Friday said the aim of the legislative amendments is to “allow superannuation funds greater flexibility to provide their members with simple and cost-effective advice about retirement, in addition to the collectively charged advice they already provide” under current regulations.
Collective charging will be allowed, provided trustees “comply with other relevant requirements such as the best financial interests duty and requirement to share costs in a fair and reasonable manner across members of the fund”.
In the case of advice about appropriate drawdown levels from an account-based pension, for example, advice could include “the member’s personal circumstances, such as assets outside superannuation, mortgage repayments and spouse’s income”.
But it is unlikely that advice on insurance will be allowed.
“Whilst the advice topic, insurance held through superannuation, relates to a beneficial interest in the superannuation fund and personal circumstances can be considered when providing the advice, because the advice is complex and therefore costly, the trustee may determine the advice in this instance cannot be collectively charged as it is not in the best financial interest of members,” the explanatory memorandum accompanying the draft legislation said.
“Instead, the trustee informs the member the advice should be charged as member-deducted advice.”
It is also unlikely funds can provide advice to a member about investing in property, even the fund can consider such an investment when developing advice on other issues.
“The regulations may provide that a trustee cannot provide personal advice to a member in relation to property and collectively charge for the advice, as property does not relate to a beneficial interest in the fund,” it said.
“However…a trustee may take into account that the member is a property owner when providing financial advice about retirement drawdown strategies, and collectively charge for that advice.”
And providing clarity on “targeted prompts” will make it simpler for funds to engage with members at moments in their lives when superannuation is a topic they’re likely to be thinking about. Jones has previously said that nudging is already effectively required by funds’ Retirement Income Covenant obligations, but it’s not happening because funds believe the law doesn’t allow it.
The explanatory memorandum says the legislative reforms create a framework for trustees to send targeted superannuation prompts to members.
It says funds must an assessment framework before sending any targeted superannuation prompts, “which will involve identifying the targeted group, considering the appropriateness of the advice for the group and taking steps to identify and manage any risks”.
It says if trustees comply with the framework provisions, the law will make it clear that the prompts are not regarded as personal advice, which will “reduce uncertainty and allow superannuation funds to deliver prompts that are targeted to groups of members, as opposed to generic information” that members might ignore because they think it is irrelevant to them.
Tranche 1 of the DBFO reforms was plagued by drafting errors that dragged out the process of consultation and passage of the legislation through parliament. In a statement released on Friday Jones said “releasing this legislation now gives stakeholders more time to review and comment on the parts of the next tranche that are ready to be reviewed”.
The aim of the DBFO reforms, which sprang from the Quality of Advice Review initiated by the Morrison government and conducted by Allens partner Michelle Levy, was to improve access to quality, affordable advice for more Australians.
In a statement the Financial Services Council said the government’s broader financial advice reform package has the potential to reduce the cost of providing advice by 40 per cent.
“Layers of red tape and onerous regulation has meant that financial advice now costs more than $5000 in some cases, putting it out of reach for millions of Australians,” it said.
The Association of Superannuation Funds of Australia (ASFA) said it welcomed the reforms, which it said are “designed to modernise the financial advice framework, making advice more accessible, affordable and tailored to individual needs.
The Super Members Council (SMC) said the reforms will “better equip super funds to help their members to prepare for retirement, taking into account their super, pension eligibility and household income”.
