NSA and atmx join forces to Keep Cash

Over the next 20 years Australia will experience an unprecedented intergenerational transfer of wealth – estimated at up to $5.4 trillion. 

There’s a real need for Australians to access professional financial advice to help them navigate the investment and other perils this transfer will involve, as well as the regular investment and retirement strategies required to manage superannuation savings. 

This should usher in a golden era for professional financial advisers, who will play a critical role in the shift. However, if current industry trends continue, the average Australian faces being left on their own in planning investment and retirement strategies. 

The provision of financial advice is splitting. Financial advisers warn there will be a future for entry-level, low cost, automated (online/AI generated) advice and an even better future for customised, face-to-face, high-fee advice for those who can afford it. 

But many “mum and dad” investors don’t fit neatly into either category. 

Add to that the growing shortage of financial advisers in Australia, with numbers dropping from almost 30,000 in 2019 to just over 15,100 currently. Another 1,000 advisers are expected to leave the industry this year. 

This 47% decline in advisers has been driven by greater government regulation of the sector in response to failure and financial misconduct exposed by the Hayne financial services royal commission in 2017.  

Financial advisers say the new government regulations, aimed at protecting consumers, have increased costs and led to the exit of practitioners, putting an essential service for the very people who need it the most out of reach.

The average annual fee for financial advice has increased 18% in a year to $4,700, with further rises expected as the government introduces further reforms. 

In its pre-Budget submission, the Financial Advice Association of Australia (FAAA) makes recommendations to government to 

• Grow the finance advice industry 
• Ease costly regulation and “red tape” 
• Close the advice shortage “gap” 
• Ease the costs of educating and recruiting entry-level advisers 
• Enable Australian universities to train students in the Australian-required degrees offshore. 

It is a difficult argument for the FAAA to make, when memories of financial misconduct are still fresh and boosted by the role played by some advisers in the Sheild and First Guardian scandal, ruining the retirement of more than a thousand people.  

ASIC continues to pursue advisers over the collapse of those funds. Melbourne-based financial adviser, Neil McPherson, and several other former advisers from MWL Financial Services have been banned from providing financial services for giving advice to investors involved with Shield and First Guardian. 

If you are a client of MWL and have concerns about the conduct of your adviser or the advice you received, you should consider lodging a complaint with the Australian Financial Complaints Authority. 

ASIC maintains a Banned and Disqualified Register of people and organisations that are disqualified or banned from roles in corporations, financial services, or the credit industry. 

What is government doing? 

It appears the Federal Government continues to favour reform through regulation, while addressing affordability issues. 

The upside to regulation can be enhanced consumer protection, while the downside, according to financial advisers, is the raising of costs and pushing quality advice further out of reach of average Australians. 

Industry superannuation funds are also backing additional consumer protection through government regulation. 

For example, while the FAAA wants an easing of some regulation through the budget, the Super Members Council (SMC) is urging the government to fast-track and fund stronger super consumer protections in the Budget. More on that below. 

The Federal Government is reforming the financial advice sector through two packages, which it says aims to strengthen consumer protection, improve confidence in the financial services system, and make advice more affordable and accessible, while maintaining high standards. 

The package comprises: 

• A Delivering Better Financial Outcomes (DBFO) package 
• Treasury’s Enhancing oversight and governance of managed investment schemes. 

The DBFO is the government’s response to recommendations of the Quality of Advice Review (QAR) final report and focuses on reforming financial advice. 

The managed investment schemes consultation aims to fix structural risks in investment vehicles, specifically managed investment funds, of which Shield and First Guardian are examples. 

The DBFO package reforms are being rolled out in tranches which the government says addresses the affordability of financial advice. 

This will be achieved, in part, through: 

• The creation of a new class of adviser to provide simple advice, such as choosing an insurance policy or basic questions about retirement. 
• Modernising 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. 
• Removing the safe harbour steps. 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. 
• Reforming statements of advice so they help consumers make informed decisions. 
• Clarifying the rules on what advice topics can be paid for through superannuation, including through collectively charged arrangements. 
• Allowing superannuation funds to provide helpful “nudges” to drive greater member engagement at key life stages. 

SMC submission highlights 

SMC is a peak industry body of profit-to-member superannuation funds. 

Its submission calls for: 

• A crackdown on aggressive selling of super products through social media advertisements and cold calling, and stronger safeguards to protect both consumers and advice licensees from potential conduct risks arising from conflicted remuneration. The latter could be achieved by an ASIC review to inform a refresh of its conflicted remuneration guidance and ensure there are no loopholes in this key consumer safety protection. 
• A reversal of the government’s decision to force low-income workers in the well-regulated mainstream super system to cover a cost blowout in the Compensation Scheme of Last Resort, while excluding wealthier Australians with self-managed super funds (SMSFs). Yet around 80% of existing claims on the scheme related to advice on SMSFs. 
• Ending discrimination against under-18 workers by scrapping an outdated rule that denies them super if they work fewer than 30 hours a week. 
• Simplify the path to retirement by fast-tracking the DBFO reforms, enable real-time data sharing between government and super funds, and let retirees be paid super contributions into their retirement phase account to cut duplicate fees. 
• Close the gender super gap by indexing the promised lift to the Low Income Super Tax Offset, remove barriers to women’s workforce participation, boost access to childcare and aged care, and make super splitting fairer and more transparent in non-court divorces, where fewer than a third of couples currently split super. 

What is this new class of adviser? 

The new class of adviser will be restricted to providing advice on products issued by prudentially‑regulated entities. 

They will be prevented from providing advice on more complex topics, such as establishing a SMSF or advising on a managed investment scheme, through a blacklist to be prescribed in regulations. 

The government says this will allow these advisers to focus on simple topics that people would benefit from more information on. 

There will be a clear boundary between the new class of adviser and professional financial advisers. The new class of adviser will serve as one entry‑point to rebuild the financial advice profession, and the government says it is committed to reforming the broader education pathways for financial advisers. 

Related reading: FAAA, The Australian, ASIC