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Super funds gain flexibility in fee models under advice reforms
Superannuation funds will have two options for charging fees for the advice provided by the new class of adviser.
In a statement on Tuesday night, Financial Services Minister Stephen Jones unveiled further details of the government’s second tranche of the Delivering Better Financial Outcomes package, emphasising its aim to meet Australians' needs by expanding access to high-quality, safe, and affordable financial advice.
According to the minister, licensees will be permitted to charge a direct fee for the advice provided by the new class of adviser (NCAs).
This enables advice businesses, alongside super funds, banks, and insurance companies, to employ these advisers and offer their services for a fee – this must be an episodic fee, with NCAs prohibited from charging ongoing fees or receiving commissions.
Strict limitations will also be imposed on the scope of advice these operatives can provide, with the minister clarifying there will be a blacklist in the legislation.
Super Review understands that in meetings held by Treasury with select groups in the lead up to Tuesday night’s announcement, industry super funds had clashed with retail funds and advice stakeholders over the charging model for the proposed new class of adviser.
Namely, retail funds in particular are believed to have opposed the collective charging model, given their limited size compared to the much bigger industry funds. As such, the government’s latest announcement is perceived as levelling the playing field by allowing funds to choose how they charge.
Advice on select issues
The new class of adviser will be restricted to providing advice on products issued by “prudentially-regulated entities”, the minister said.
“They will be prevented from providing advice on more complex topics, such as establishing a self-managed superannuation fund or advising on a managed investment scheme, through a blacklist to be prescribed in regulations,” Jones elaborated.
This, he elaborated, will allow these advisers to focus on simple topics that most Australians would benefit from more information on, while also ensuring that there is a clear boundary between the new class of adviser and professional financial advisers.
“It is the government’s vision that the new class of adviser serves as one entry-point to rebuild the financial advice profession, and the government remains committed to reforming the broader education pathways for financial advisers,” Jones said.
The minister also clarified that the new class of adviser will be prohibited from charging ongoing fees or receiving commissions and will be held to the modernised best interests duty, aligning with the standards set for professional financial advisers.
“Anti-hawking restrictions will continue to apply, and the new class of adviser will be limited to customer-initiated engagement for new customers, ensuring they cannot be used to cold-call customers or offer unsolicited advice,” the minister said.
Licensees will also face additional monitoring and supervision obligations, backed by civil penalties, to ensure advisers operate strictly within their expertise and authorisation while adhering to the best interests duty and other requirements.
Overall the next tranche of advice reforms will:
• create a new class of adviser to provide safe and simple advice to more Australians, such as choosing an insurance policy or basic questions about retirement;
• modernise the best interests duty by providing legal clarity that will allow advice on single or limited scope issues if this meets the client’s needs;
• remove the safe harbour steps so advisers can focus on their client’s needs – though well intentioned, the safe harbour steps have become interpreted to mean financial advice must always be comprehensive, even if that is not in the client’s interests;
• reform statements of advice so they help consumers make informed decisions;
• clarify the rules on what advice topics can be paid for through superannuation; and
• allow superannuation funds to provide helpful ‘nudges’ to drive greater member engagement at key life stages.
Ultimately, the minister said: “These steps will provide greater choice and support to the millions of Australians seeking financial advice throughout their lives, while maintaining important safeguards.
“The government is developing exposure draft legislation for public consultation based on these announced parameters.”
It is not immediately clear when the draft legislation will be released.
AUTHOR
Maja Garaca Djurdjevic
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