The Financial Services Council (FSC) has argued a “one-size-fits-all” regulatory framework to superannuation needs to evolve to keep up with the increasingly complex financial advice needs of Australians.
According to new research for the FSC, conducted by NMG, the number of Australians with complex financial advice needs is set to hit 7.2 million in the next 25 years – a 70 per cent increase from the current 4.3 million.
With financial circumstances becoming more complex as people age, the FSC said current superannuation regulation and legislation are “overwhelmingly designed with simple, default arrangements in mind”.
The report, which looked into five policy areas – the Your Future, Your Super performance test, the Retirement Income Covenant (RIC), member outcome assessments, member engagement and communication, and fee templates and data requirements – recommended a regulatory approach that “recognises and supports Australians with unique advice needs”.
It backs an approach based on the principle that Choice products should have wider guardrails, given the understanding that there is a much higher level of consumer engagement and decision-making.
“The number of Australians with complex financial advice needs will grow by 70 per cent to 7.2 million consumers over the next 25 years, and the regulatory framework for consumers choosing their own superannuation and investment arrangements needs to evolve to meet their needs,” said FSC chief executive Blake Briggs.
“The current ‘one-size-fits-all’ approach to superannuation regulation prioritises simple, default arrangements, adversely impacting the 70 per cent of the market characterised by engaged consumers making investment choices and supported by financial advisers.
“Australia’s regulatory framework needs to evolve to accommodate the superannuation funds, investment platforms and financial advisers that cater to Australians with more complex financial needs.”
The FSC has also released a framework that shows what it said are examples of regulation designed with default settings in mind that are “ill-suited to industry participants that cater to more complex advice needs”.
“A more sophisticated approach to financial services regulation would promote competition and reduce regulatory cost and complexity for choice products and expand consumers’ access to financial products that better suit their personal needs,” Briggs said.
On the Your Future, Your Super performance test, the FSC said that it should only apply to MySuper and Simple Choice (multisector and broad single sector trustee directed options), and not apply to Broad Choice products to “acknowledge the role of financial advisers’ investment selection and ease regulatory burden”.
The enforcement of the RIC, the FSC said, should acknowledge the role of financial advisers in Choice customers’ decision-making.
“RIC interpretation should encourage trustees to support member choice and acknowledge some customers have already made an active choice of product/investment option, and do not require significant further assistance from the superannuation fund,” it said.
Member outcome assessment should also be consolidated into other trustee obligations, while the regulatory framework should recognise that Broad Choice product users have already set up and chosen their preferred engagement and communication preferences with their provider.
“Fee templates should capture the range of different fee configurations, allowing Broad Choice fee structures to be more easily reported and contextually interpreted by superannuation members,” the FSC added.
