After a 12-month inquiry, the Productivity Commission has submitted its final report to the government, which has over 30 recommendations including the commission ban.
“The Australian government should ban trailing financial adviser commissions in superannuation, to take effect as soon as practicable,” it said.
The report also recommended that the government require all fees charged to be levied on a cost recovery basis.
“These rules should be implemented and enforced by regulators in such a way that avoids gaming by funds and does not pose new barriers to member switching,” it said.
The commission also continued its call for a ‘best in show’ shortlist aimed at empowering employees.
“This new approach will support member engagement by ‘nudging’ members towards good products without forcing them to pick one. Members will retain the option to choose from the wider set of MySuper and choice products (or establish their own SMSF), and elevated ‘outcomes tests’ will help to weed out persistently underperforming products from the system,” the report read.
The report said that the shortlist would be developed by an independent expert panel who would asses fund applications for the list every four years.
“Every four years, this panel should assess applications from funds (including those already on the shortlist) on the basis of clear criteria that are focused on the fund’s likelihood of delivering strong long-term outcomes for members. Only MySuper products would be eligible for shortlisting,” it said.
However, industry groups have criticised the shortlist, with Association of Superannuation Funds of Australia chief executive Dr Martin Fahy saying it would reduce competition.
“ASFA is disappointed that the Productivity Commission has doubled down on the so called ‘top 10 best in show’ as a mechanism for allocating default super. This approach risks creating an oligopoly in default superannuation and reducing long-term competition,” he said.
The commission noted this feedback in the final report but said that the panel would be forced to judge all applications for the list equally.
“All funds would remain free to compete for members and build scale. The expert panel should also be explicitly required to create a competitive dynamic each time it selects funds for the shortlist,” it said.
The commission also backed the government’s legislation that would strengthen MySuper and create an annual outcomes test in the industry.
“The government has already presented legislation to Parliament to strengthen MySuper. This entails the introduction of an annual outcomes test whereby trustees must determine whether their MySuper product is meeting the best interests of their members and must compare their MySuper product against others in the market based on fees, returns, risk and other metrics,” it said.
The commission called for the tests to go further, saying funds should be required to obtain independent verification and if they failed to reach the investment benchmark they would be pulled from the super system.
“MySuper products and choice options that persistently underperform the benchmark would fail this ‘right to remain’ test. The fund would then have 12 months to remediate (such as by cutting fees) or to withdraw the investment option and move the affected members somewhere more suitable,” it said.
In a blow to Labor’s proposal, the commission recommended that a separate inquiry occur before any changes were made to the superannuation guarantee rate.
“The Australian government should commission an independent public inquiry into the role of compulsory superannuation in the broader retirement incomes system. This inquiry should be completed in advance of any increase in the superannuation guarantee rate,” it said.
Labor had previously announced plans to boost the superannuation contributions from 9.5 per cent to 12 per cent, which it voted to prioritise at its December conference.
Treasurer Josh Frydenberg welcomed the commission’s findings, saying that the government would carefully look at the commission’s 31 recommendations.
“The government will carefully consider the recommendations and will await the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry’s final report before finalising our response to the Productivity Commission’s report,” he said.
Mr Frydenberg said that many of the government’s super reforms currently before Parliament were endorsed by the report, including the automatic consolidation of low-balance inactive accounts and better reporting of expenses to improve transparency.
“It is time the Labor Party stopped blocking these amendments, listens to consumer advocates, independent experts and support what the commission calls ‘must have’ common sense reforms that put the interests of members first,” he said.
Productivity commission effectively asking the government to ignore the constitution & legislate anyway. There’s some seriously dumb people getting around commenting on this industry as if they know what’s what.
Commissions on existing contracts were grandfathered because it IS AGAINST THE CONSTITUTION to remove them. ASIC has acknowledged this. So either get out the big fat cheque book and buy them back or move on to something that wont require a referendum.
What Australian will vote to approve the government confiscating property rights without fair compensation?
Productivity commission is showing how stupidly naive they are.
It’s a nice sentiment, unfortunately there are many levers that can be pulled to remove the grandfathered trail commissions – one is to simply close down the product like BT has just done, move the clients to a non-fee paying fund then put the onus on the adviser to re-engage the client.
“What Australian will vote to approve the government confiscating property rights without fair compensation?”
Trying selling that line to a Labour Government.
This whole industry is in a complete mess and is being destroyed by factions with hidden agendas and self imploding.
The fanatical and obsessive focus on financial advice over the last 7-8 years has been completely unbalanced and is now a national sport…especially from completely uniformed journalists and media commentators who provide immediate general advice on air which may well have a detrimental effect on a listener’s or viewer’s position if they acted.
The number of so called experts providing their opinion on areas they do not clearly understand is negligent and irresponsible…..but so are the vast majority of the media.
The ABC are one of the worst with a deceptive and subliminal message being pushed whilst trying desperately to avoid the ” biased ” tag….which they will never, ever do.
So, lets see if I understand this right….Risk ONLY advisers are now being forced by FASEA to undergo university studies with Super probably being the first of the many courses imposed for most of us – yet we’re now being told there is no long term commercial financial security to be had in this space with trail commissions being banned (which is a servicing fee – not free money) if what the Productivity Commission is now suggesting? Mmm…what to do???
There are so many d-heads working for regulatory bodies just trying to make a name for themselves now, who clearly have no understanding about the impacts that their uninformed decisions will have on this industry, its become just laughable.
Who in any right mind, ANYWHERE in the world works for nothing – so why would you bother sticking around this industry as an adviser now?
Bloody risk only adviser crap again.
Come on get with the program mate that doesn’t exist anymore and trails haven’t been available for new products for years
This only affects the lazy who have not transitioned to a few for service model
get real.. you would go broke for FFS for risk only clients
What to do? Not be a risk only adviser. Advisers need to be looking at ways at expanding their value proposition, not remaining in niches.
Do these people not understand the issue was dealer groups continuing to charge the trail commissions not the individual advisers or practices who had to follow either FDS or Opt In requirements.
Are you serious? Do you have any understanding of the industry
Tell me, what is the issue?
Interested to note what they call ‘commission’ – haven’t commissions been ‘banned’ on super and investments more broadly for the last number of years??? It’s my understanding that all fees payable to adviser where the adviser is receiving payments for managing a client account are required to be detailed every year and opted into every 2nd year… have I missed something here???
Grandfathered trail has remained on existing products and even after 5 years some still have there head in the sand
You’re missing the fact that new commissions were banned, but existing ones were grandfathered, and that this article is talking specifically about grandfathered commissions.
the reason why they were left in the first place it was breaking consumer laws, they already ran into road blocks when they introduced the first lot of policies
it’s become a national sport to throw the boots into this industry.. it really is pathetic. Watching the news last night, the TV reporter basically said to switch funds for lower fees.. love to see that in an SoA when no consideration is made to a person’s insurance or health etc.. But all ok, we have Centrelink who will make sure that super members receive a lump sum benefit to pay off their loans and leave a lump sum.. these over educated idiots have no idea.. just put me out of my misery!
“This new approach will support member engagement by ‘nudging’ members towards good products without forcing them to pick one”.. in other words lets get rid of the SOA, advice and advisers and build websites that give lots of information and charge clients for it, but leave them to make their own decision. Lets do the same for doctors, Doctor Google, oh no i have cancer again and i’m going to die. Or Electricians, Dr Spark, oops i’m color blind and dead. Great work Scott, Josh and the Team. Hope you adding staff to Centrelink.
Hope all those liberal party leeches end up at Centrelink after the next election the bludgers.