The ability of APRA-regulated super funds to deliver personalised and relevant guidance and financial advice to members will be significantly boosted after the government announced a revival of the Delivering Better Financial Outcomes reform proposals to allow the development of the so-called new class of adviser. 

Superannuation funds and life insurers will be the only entities allowed to operate the new class of adviser, under a package announced on Wednesday by Assistant Treasurer and Minister for Financial Services Daniel Mulino. Financial advice licensees and banks will be barred.  

The introduction will be supported by prohibitions on commissions, bonuses and volume-based payments as safeguards against vertical integration, and its scope will be reviewed in three years to determine whether it should be expanded. 

Mulino said in an address to the National Press Club that the rationale for the NCA reforms has always been anchored in superannuation. 

“In super, in particular, there have been a number of situations evolve in the system where a number of understandable protections in the system have now meant that super funds can’t answer basic questions when members call up, and that is not to the advantage of members,” he said.  

“I believe it’s actually contributed to members seeking guidance from other sources.” 

The new class was primarily focused on where basic guidance and basic answers to questions would have provided people with assistance in getting much better outcomes. 

“We’ve limited it to the APRA-regulated parts of those two sectors because we believe if it’s tightly defined, that will provide people with answers to really important questions, but in a targeted way that will not encroach on the kinds of advice that advisers do,” he said. 

Mulino also announced progress on targeted superannuation prompts, intra-fund charging and streamlined statements of advice. 

“These reforms will allow superannuation funds to engage with members when they need support most, helping Australians receive guidance at the important points in their financial lives, rather than after opportunities have already been missed,” he said.  

The government will legislate an obligation on trustees to have and ensure compliance with advice fee deduction caps for their members. Mulino said ASIC’s work on advice fee deductions had exposed failures in platform governance and inappropriate switching charges. 

“It is difficult to argue that very large advice fees charged to members with low balances for switching-related advice can satisfy an adviser’s obligation to act in their client’s best interests,” he said. 

Mulino said the government is looking at allowing funds giving guidance under the new class of adviser access to Centrelink data. 

“There is a real opportunity here for funds to give better guidance if they have a basic understanding of somebody’s overarching financial situation,” he said. “But I don’t want to underestimate the challenges that might arise along the way. These are complex systems to dovetail.” 

Trustee remediation 

Mulino said that trustees will be required to compensate members for their full capital losses where the trustee has breached its obligations, under a framework that will allow ASIC to direct a trustee to begin remediation where an investment option fails and there is reasonable suspicion the trustee has not met its obligations.  

APRA will be given power to set capital requirements so that trustees offering higher-risk options have the financial capacity to meet those obligations. 

“If a prudentially regulated superannuation platform places a product before consumers, and the trustee of that platform fails to discharge its responsibilities, consumers should not be left facing years of uncertainty while they pursue redress through multiple avenues,” he said. 

“They should have a clear and practical pathway to meaningful compensation.” 

The framework is designed to position a party with a direct connection to a failure between the member and the Compensation Scheme of Last Resort. Mulino said the model was inspired by what happened to Shield and First Guardian investors who had been on platforms operated by trustees able to compensate them. 

“When Macquarie and Netwealth stepped up, at different times but they both stepped up, people got their capital back, and they got it back pretty quickly,” he said. 

“Compared to the delays that people would have faced if they’d had to navigate the whole rest of the system, that was a good outcome. And it also meant that parties with a direct involvement were the ones who were stumping up, and it wasn’t then having to go to the CSLR and be spread across the whole sector.” 

The obligation will follow from operating a platform, Mulino said. 

“Where you’re operating a platform, you’ve got to demonstrate that you have the wherewithal to back up your obligations,” he said. “If you’ve got those obligations and you don’t meet them, you fail to live up to those obligations, you have to have the ability to compensate to give people their capital back.” 

That capacity can be demonstrated through direct access to capital or through a related-party guarantee, and the government will work with APRA on the detail. 

“There are ways that we’re going to be able to do this that are risk-rated, that are not overly burdensome, and as I mentioned in the speech, it will dovetail with the MIS reforms, where we’re collecting more data on MISs so that we can identify the high-risk MISs,” Mulino said. 

APRA-regulated funds already face requirements to hold reserves. The capital measure is an additional set of requirements aimed at trustees offering services through platforms. 

Lead generation 

The government will ban unlicensed real-time communication about superannuation, limit the anti-hawking exemption for financial advice to existing client relationships, and strengthen penalties for anti-hawking breaches, in an attempt to stamp out predatory lead-generation practices. 

It will consult on banning engagement models that collect consumer data for referral into other parts of the financial services sector and will introduce stronger consent provisions. 

The collapses of Shield and First Guardian affected almost 12,000 Australians who invested more than $1 billion of their retirement savings, Mulino said, and the people who lose money in the system are not chasing speculative returns. 

“They’re ordinary Australians attempting to make sensible decisions about their retirement,” he said. “Too often, the story begins the same way. A lead generator makes contact through social media, an online advertisement, or an unexpected phone call. A persuasive sales process follows. Consumers are told their superannuation is underperforming, that they’re missing opportunities, or even that their retirement may be at risk. I have read the transcripts of these interactions. The perpetrators are sophisticated and effective.” 

Consumers were then referred to an adviser, and savings moved into a small number of products that were sometimes “highly risky, not transparent, and not diversified”, Mulino said. 

Mulino said the government has targeted real-time contact because that is where the greatest harm occurs: the real-time interactions where unsuspecting consumers are skilfully manipulated through telephone calls, discussions and chats. 

“These reforms dovetail with the limitation of the anti-hawking exemptions to existing client lists, so it’s really all of these measures working together, and then finally with stronger consent provisions,” Mulino said. 

“And we’re confident that all of these measures working together will see a system whereby people will not have unsolicited [approaches made] to them, where they will be protected from that kind of manipulative behaviour, where their data will not be misused in the system.”