‘Guardrails’ needed to avoid return to vertical integration

TAA chief executive officer Neil Macdonald said “great care” is needed before implementing the QAR recommendations related to non-relevant providers giving “good advice”.

“While we broadly support the Quality of Advice Review recommendations, we believe great care must be taken before implementing some of them, or we may face a back-to-the-future scenario that did not serve Australians well,” Mr Macdonald said.

He said that the guardrails should be around who should be permitted to deliver personal financial advice, the extent of the advice they give, the minimum education and qualifications they hold, and the obligation to provide “good advice”.

“It is very clear, particularly as a large percentage of the population nears retirement, that we need to enable more people to give personal financial advice,” Mr Macdonald said.

“But while the advice profession continues to debate what the future should look like, industry funds have continued giving advice and are taking over the role previously played by the banks.”

He added that the relatively low statement of advice (SOA) production from the industry funds sector would appear to indicate that the advice being provided is general in nature, but personal advice is likely required, especially in preparation for retirement.

“There is a world of difference between giving people general information and giving them personal financial advice that meets their needs,” Mr Macdonald said.

“There is also a risk that general advice will continue to be provided instead of ‘good’ personal advice, and that doesn’t address the issues of the past.”

The QAR recommendation to expand the definition of personal advice to require non-relevant providers to provide “good advice”, Mr Macdonald said, is an important consumer protection and must be enforced if there is no best interests duty.

“If it is not, then complex retirement advice could easily be provided to members of a super fund, without any consideration of issues that profoundly impact consumers in retirement — for example, Centrelink benefits, who and when to move to pension phase, etc,” he said.

A number of super funds have already begun increasing their output of personal advice, for example, REST issued more than 19,000 statements of advice in FY22, up 77 per cent on the previous year. Similarly, UniSuper had its best ever year in financial advice in FY22, with a 43 per cent increase in the volume of intra-advice provided compared with the previous financial year.

IFS Group, which is owned by 19 industry funds, licenses 120 advisers across 16 industry super funds and generates 7,500 SOAs per year.

“We are seeing strong growth both in the number of advisers and the volume of advice given,” IFS Group chief executive Csaba Baranyai told ifa earlier.

“We were the fastest growing advice licensee in 2022, which is very exciting. We are seeing new advisers joining us from both the IFA and retail space.”

Last month, the Australian Retirement Trust (ART) announced an end-to-end digital advice platform, but said it would not provide comprehensive advice. 

“We believe in open architecture advice. We believe advice is a very individual experience,” ART head of advice, Anne Fuchs, told ifa. 

“Superannuation has had traditionally a very paternalistic approach to advice. You can only come to us and it’s comprehensive advice and we think actually, the way of the future, with that spirit of democratisation is we just give them [consumers] options, so they can consume it how they want to consume it.”