Millions of Australians will be able to tap their super fund for more financial advice about their retirement and superannuation under changes being announced by the federal government, but they will have to pay for the benefit — in some cases even if they don’t use the service.
Assistant Treasurer Stephen Jones said reforms introduced after the banking royal commission, which revealed horrific stories about “fees for no service”, had led to a situation where Australians could not access advice from their super fund about their retirement options.
After months of industry consultations, Mr Jones said he would change the law in this term of parliament to create a new category of diploma-qualified financial advisers who could give some limited financial advice.
“There’s about 5 million Australians either at or approaching retirement, and they’re not getting access to affordable, reliable advice,” Mr Jones told ABC News.
“That’s the nut we’ve got to crack. How do we ensure the vast majority of Australians who have thousands, not millions, of dollars in their [retirement] savings can get some sensible, scaled advice which is appropriate to their circumstances at an affordable price.”
The changes come as an independent review from Deloitte into superannuation giant Cbus called on the fund to exercise spending controls, questioning whether funnelling millions of dollars to its union partners was the best use of members’ money.
The review said “it is our assessment that lack of consistency, appropriate process, appropriate governance, and necessary rigour, are all areas for improvement”.
It said the fund was “currently lacking for the determination as to whether expenditure decisions have been made in the best financial interests of members”.
And it noted “failings in the design and operation” of its best financial interests duty arrangements.
The review also questioned the benefit to members of Cbus representatives attending events such as CFMEU member day picnics, participation in the CFMEU annual delegates’ Christmas party and the reservation of two tables for 10 at the CFMEU-sponsored AFL Grand Final breakfast.
It recommended Cbus better document how it measured the success of spending with union partners and more detailed assessments of whether members benefited from this spending.
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Super funds could be forced to improve claims processing (Nassim Khadem)
Asked why Australians should trust superannuation funds at a time when Australia’s $4 trillion superannuation industry faced a crackdown from corporate watchdog ASIC after damaging allegations about Cbus taking more than a year to pay thousands of death and disability claims, Mr Jones said he had already put super funds on notice that they needed to lift their game.
He said these government changes would hopefully make it easier for super funds to give their members better service.
“We’re putting a lot of pressure on the funds to improve their service arrangements,” Mr Jones said.
“Let’s be frank: A lot of funds have been pretty ordinary [in how they treat members]. The funds have got to dramatically shift to become service delivery organisations as well, and they’re a long way off the pace.
“These laws are about removing some of the obstacles to them [super funds] being good service delivery operations, but there’s a lot more that needs to be done in other areas, including the payment of death benefits and disability benefits and insurance claims.”
No cap on fees under the legislation
The law will be changed to clarify the rules on what advice topics can be paid for through superannuation and will allow super funds to “nudge” consumers at stages of their life when they may need greater advice.
The super funds will have the choice to charge members directly — through a direct fee on each member seeking advice — or collectively, by placing administrative fees on all super fund members (whether or not all members take up the option to get financial advice).
Funds will also be able to outsource the advice if they choose.
Super Consumers Australia chief executive Xavier O’Halloran said the proposal will see super funds recoup the cost of these poorly trained advisers from all super fund members, regardless of whether they use the service.
“The super industry is already spending $73 million in members’ money every year on these services, and the reforms are likely to see this figure increase significantly,” Mr O’Halloran said.
“This approach encourages super funds to charge fees for no service and flies in the face of the Financial Service Royal Commission reforms to end this practice.”
Mr O’Halloran said the government’s reforms were “a huge win for super funds”.
“It will now be easier to charge their members for conflicted advice,” he said, noting that super funds would not be giving advice to members for them to leave that fund, even if it was in their best interest to do so.
He said where funds instead charge members directly, there is no guarantee that these savings will be passed on.
“This comes on the back of an ASIC report released in May this year which found super funds were failing to protect their members from excessive financial advice costs and failing to check if advice was in the best financial interest of members,” he said.
“The ASIC findings were chilling — several major super funds were failing to undertake any kind of checking on advice charging and members of 70 per cent of super funds were found with advice fee deductions exceeding $15,000.
“This is an obscenely high charge, more than three times the average cost of advice.”Cbus cancels customer’s insurance days before his death
Photo shows Gail Ferrari-Hirst and Russell Hirst embrace while standing
Just 18 days before Russell Wayne Hirst died of a cardiac event in November 2021, superannuation giant Cbus cancelled his insurance policy, leaving the beneficiary of his account in a year-long fight to have her claim approved.
The assistant treasurer said the changes were designed to make financial advice more affordable.
Mr Jones said the new class of advisers would not be permitted to charge ongoing fees or receive commissions. However, he said fees would not be capped under the legislation.
He said he did not think this would be a profit-making centre for super funds, and current restrictions under the law would prevent funds from spending funds in a way that was not in the best interests of their members.
He said he would ask prudential regulator APRA to set limits if needed.
“There will be the capacity for the regulators to put out guidance on the feature, the fee-charging arrangements, or for those matters to be dealt with in the regulations,” Mr Jones said.
Certain advice will be ‘blacklisted’
The Association of Superannuation Funds (ASFA) CEO Mary Delahunty said ASFA said the government’s changes will help provide “Australians with greater access to affordable, quality financial advice — helping to secure their financial future and support a dignified retirement”.Australian super funds put ‘on notice’ by ASIC
Photo shows A man sits behind a large desk with multiple microphones in the background and a man speaks on a virtual call on a laptop
ASIC says it has done a thorough investigation into all super funds in the country and more court action is likely.
She said ASFA research released earlier this year revealed that one in two Australians have never accessed advice on preparing for retirement, reinforcing the need for quality, trusted financial advice to be more accessible and affordable.
“Financial advice is a critical ingredient in helping Australians build and protect their retirement savings,” she said.
Mr Jones said without affordable advice, Australians would either get no advice — which would lead to lower standards of living — or seek advice from dodgy sources and scammers.
“They’re going to the internet, they’re going to Instagram, they’re going to TikTok and all these other unsafe places to get really critical advice,” Mr Jones said.
“They [Australians] are losing millions of dollars because they’re not making their best decisions, or they’re making catastrophically bad decisions and falling for fraudsters and scammers.”
Mr Jones said he hoped to pass legislation this term that would put limitations on what advice this new class of advisers with diplomas could give.
Super funds will be restricted to providing advice on products issued by prudentially regulated entities.
The funds will also be prevented from providing advice on more complex topics, such as managed investment schemes or establishing a self-managed superannuation fund, through a blacklist to be prescribed in the regulations.
“They [consumers] can’t use their superannuation funds to go off and get advice on investing in cryptocurrency or the bond market; it would have to be in or in relation to their superannuation,” Mr Jones said.
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.
There are fears of widespread issues within the super industry.
Licensees will also be subject to additional monitoring and supervision obligations — with civil penalties attached — to ensure that advisers only provide advice within their expertise and authorisation.
Mr Jones said there were currently about 16,000 financial advisers in Australia, and it would be good to double that amount.
“We could easily double the number of financial advisers in Australia and still not have enough to meet the need, which is why we’ve got to look at a range of different solutions,” Mr Jones said.
“I’m hoping these changes we make will attract people back into the financial advice industry and give them a pathway to get … both the diploma and the professional qualifications they need to practise.”
Mr Jones said he had consulted widely with stakeholders and that some participants signed non-disclosure agreements that they would not leak the information before it was announced.
