Australians to Get Affordable Financial Advice From Super Funds Under New Reform

Australian dollars in Sydney, on Jan. 15, 2016. (AAP Image/Joel Carrett)

The Australian Labor government has introduced a new reform that allows more citizens to access affordable financial advice from their superannuation funds.

This comes following an exodus of financial advisors in the country due to a 2019 royal commission’s inquiry into the misconduct in the banking, super and financial services industry, which resulted in a shortage of accredited advisors and soaring service fees.

In his speech to the Association of Superannuation Funds of Australia, Financial Services Minister Stephen Jones said only a small percentage of super members sought financial advice before retirement.

“There are five million Australians at or approaching retirement. The average Australian is now retiring with around $200,000 in superannuation,” he said.

“Yet the Retirement Income Review found that only 26 percent of individuals approaching retirement seek financial advice.”

The minister noted that the situation resulted in an “advice gap” among super members, causing them to miss out on social security entitlements and other benefits.

“Superannuation funds have told me that they have many retirees who have not switched from the accumulation phase to a tax‑free pension account. This might be good for the Treasury coffers, but it’s not good for members,” he said.

“I’m also told that there are thousands who miss out on the Age Pension and other benefits that they are entitled to simply because they didn’t know who to ask. Or because they assumed their super fund was already doing this for them.”

The State of Australia’s Financial Advice Industry

Jones said the financial advice sector had become heavily regulated in the past decade as the federal government rolled out reforms to protect Australians from poor investments and bad financial advice.

“While the reforms have been effective in protecting Australians from bad advice, it has also shielded them from helpful advice,” he said.

The minister said the government’s reforms had resulted in 10,000 financial advisors exiting the industry since 2019, leaving behind just 16,000 advisors today.

Financial Services Minister Stephen Jones at a press conference in Canberra, Australia, on Oct. 31, 2022. (AAP Image/Mick Tsikas)

Due to the shrinking advisory pool, advice and information have become too expensive or inaccessible for everyday Australians, with the median ongoing advice fee soaring by 41 percent between 2018 and 2021.

While super funds were required under laws to create a retirement strategy for members, the minister said a second set of rules made it “almost impossible” for them to provide that information and advice.

Jones added that the situation had caused many Australians to seek help from “the unregulated world,” namely finfluencers (social media financial influencers), unlicensed online advice and scammers, which could lead to significant harm.

Details of the Financial Advice Reform

As Jones elaborated on the challenges of the financial advice industry, he said the government had decided to allow super funds to expand their provision of advice, and provide legal certainty for funds on how to charge fees for their services.

“Super funds are well‑suited to safely meeting the needs of their members,” he said.

“They are already governed by strong obligations to act in the best financial interests of members, and act for the sole purpose of providing retirement benefits to members.”

In addition, Jones said the government would strengthen super disclosures and consult with the industry and the Treasury Department to develop a proper advising model for super funds.

Other changes outlined in the reform include cutting unnecessary paperwork for financial advisors and exploring new channels for advice, including banks and insurers.

Following the government’s announcement, Super Consumers Australia director Xavier O'Halloran welcomed the reform and said his organisation would actively consult the government.

“We support the government’s focus on clarifying the law to make sure super funds can safely and helpfully answer simple questions from people approaching retirement,” he said.

“There is the potential to help more people plan for retirement, so long as there are appropriate consumer safeguards.”

Meanwhile, the Association of Superannuation Funds of Australia (ASFA), a peak industry body, said the reform would boost retirement incomes for Australians.

“These reforms will improve access to financial advice and retirement outcomes. They will also increase the efficiency, cost-effectiveness, and consumer experience of advice,” ASFA Deputy CEO Glen McCrea said.

“Superannuation funds are well placed to deliver the financial advice that consumers want and need. This can range from relatively simple advice around a single issue, such as contributions or investment options, to more holistic advice around retirement.”