First QAR bill reforms put ‘onerous requirements’ on trustees

Speaking at the Actuaries Institute’s Retirement Matters Fireside Chat this month, Andrew Gale, Australian Society for Progress & Wellness chairman and Gale Force Advisory owner, said the government’s Delivering Better Financial Outcomes (DBFO) package of reforms stemming from the Quality of Advice Review (QAR) are a step in the right direction.

“A lot of that is good progress and, in particular, it should open up access to advice through superannuation, which is pretty critical. Some of the issues we saw is there’s currently a large gap between the demand for help, guidance and advice, and its availability,” Gale said.

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“A lot of that is regulatory-driven complexity, which affects both financial advisers and superannuation funds and that’s part of what the Delivering Better Financial Outcomes reforms are intended to address.

“Currently, only 10 to 15 per cent of people receive comprehensive advice and if we’re going to broaden the availability and, indeed, the affordability of advice, the role of superannuation funds is critical.”

Referring again to the DBFO reforms, Gale said although the proposed changes do address some of the issues in getting super funds back into advice, it also increased the complexity and has left some trustees cautious to return to advice.

“The next issue is uncertainty in terms of how the adviser regulation will be amended to both take account of the Quality of Advice Review, but in particular, the capacity of superannuation funds to be able to deliver on those additional freedoms,” he said.

“There’s still a dilemma for superannuation funds and trustees in terms of fulfilling the desire to give more advice, to service their membership, to fulfil their obligations under the retirement income covenant but all the while trying to navigate the vagaries of financial advice regulation.

“Understandably, that’s led to a degree of trustee caution up to now and there’s still a lot more progress to be made on that front. We even saw that with the legislation, which came out about a week and a half ago, which was meant to be streamlining amendments but still had some proposed additional onerous requirements for trustees.”

The first DBFO legislation outlines that a trustee is not required to agree to the member’s request to charge the relevant costs even when the requirements are satisfied.

“A trustee could decline the member’s request if, in their view, it does not relate to the member’s beneficial interest in the fund or if charging the cost would be inconsistent with the trustee’s other regulatory obligations,” the explanatory memorandum reads.

Financial Advice Association Australia (FAAA) chief executive Sarah Abood previously flagged that the group has “strong” concerns about these onerous additional processes.

“This legislation places specific obligations on them [super fund trustees] before advice fees can be paid (under a new sub-section, 99FA, of the Corporations Act). There is no clarity as to how these obligations will be met by trustees,” Abood said.

“The risk we see is that this could cause significant extra work for financial advisers who may be asked to provide additional specific documentation, such as statements of advice and invoices.”

According to Gale, reforms should also reflect Australians’ desire for more low-stakes guidance as well the provision of advice to accommodate those needing education more than product recommendations.

“The third component is looking beyond advice. So, a lot of the reforms have been focused on advice but, in many cases, people don’t want advice per se. They just want some simple guidance and direction on particular issues. This was an issue called out by the retirement income review,” he said.

“For a large portion of the population, the ability to just give guidance rather than advice, per se, would help a whole lot of people and certainly members of superannuation funds. We think there needs to be a much more robust HGA framework which could accommodate all that.”