SMC urges advice bill passage to halt ‘rip-off merchants’ and tighten anti-hawking laws

The Super Members Council (SMC) has issued a statement in support of the proposed changes to Section 99FA of the Superannuation Industry (Supervision) Act 1993, which advice professionals have argued would only exasperate the red tape and therefore the cost of advice.

The changes proposed in the bill require funds to review clients’ statements of advice (SOAs) before they can satisfy members’ requests for payment of advice.

The SMC, which represents Australia’s largest funds, including AustralianSuper and Australian Retirement Trust, announced on Wednesday that it supports the bill in its entirety. Additionally, the council called for the tightening of anti-hawking laws to “stop dodgy financial advisers” from using cold-calling businesses to solicit clients.

It argued that “rip-off merchants” exploit a hole in anti-hawking legislation – which bans the unsolicited selling of financial products – to secure “exorbitant advice fees” from unsuspecting consumers, often charged from their super account.

“Reputable financial advisers do not rely on third parties to cold call Australians to sell their services and using cold call lead-generation for financial advice should be banned,” said SMC CEO Misha Schubert.

“These groups use clickbait-style social media posts, cold calls and high-pressure sales tactics to convince people to change super funds. Super fund members are then charged a massive advice fee and plonked into a poorer performing super product. This predatory practice needs to end.”

The SMC referenced the Australian Securities and Investments Commission’s (ASIC) recent report to support its argument, noting that the “shonks” mentioned in the report, who persuade clients into inappropriate super switching through cold calling and high-pressure sales tactics, could be eliminated if super funds are required to monitor and scrutinise SOAs.

“One of the ways these shonks can be caught is by super funds checking if advice fees are appropriate,” said Schubert.

“To give the regulator the teeth it needs to end the rip-offs, anti-hawking legislation should be extended to also ban the unsolicited selling of financial services.”

The timing of the ASIC report was deemed suspect by the advice profession given the heightened scrutiny surrounding the initial Delivering Better Financial Outcomes bill and the subsequent Senate inquiry. The inquiry, in particular, has seen the bulk of the focus placed on the suggested revision of requirements for superannuation fund trustees processing financial advice fees.

However, the SMC sees nothing wrong with the bill and further noted that the law should be passed “without delay and without being watered down”.

“Vital consumer protections that obligate super funds to check the appropriateness of advice charged from super needs to be swiftly legislated and not delayed or changed,” the CEO added.

Schubert insisted that although only a “small subset of advisers” use cold calling for lead generation, the issue is causing significant reputational damage to the entire financial advice industry.

“Australians should hang up on unsolicited calls offering to connect them to a financial adviser to review their super, as they likely lead to a shonky financial adviser,” Schubert said.

“While the regulator does crack down on individual advisers offering inappropriate advice after using cold calling lead generation, the practice of cold call lead generation selling financial advice is not yet banned.”

Advice professions demand change

Both the Financial Advice Association Australia (FAAA) and the Financial Services Council (FSC) have called for explicit changes to the bill’s provisions to ensure the regulatory burden on trustees and advisers does not increase.

The Minister for Financial Services, Stephen Jones, has clarified that it was not his intention to create additional checks. Instead, he has insisted that the policy intent was simply to continue current practices – a risk-based sampling approach.

Speaking at ifa’s Adviser Innovation Summit last Tuesday, Sarah Abood, CEO of the FAAA, shared that the government has amended the bill’s explanatory memorandum (EM) to clarify that it does not require a rigorous review of each SOA. However, she noted that maintaining the bill in its current form means the issue persists.

The concern is that if the wording remains unchanged, some trustees may interpret it as requiring more rigorous checks, thereby adding unnecessary red tape to the process.

“Our strong preference is that these changes be made in the law itself because it’s challenging practically to always have to read the EM,” Abood said.

“We think it would be far clearer and more explicit to make that change in the legislation itself and we continue to argue for it.”

Abood highlighted that if the legislation remains unchanged, according to a study conducted by the Licensee Leadership Forum, it will cost advisers “north of $400” per piece of advice to manually redact an SOA before it can be forwarded to the super trustee for approval. This process, she said, would be necessary to meet privacy obligations.

“Privacy law dictates that we can’t disclose information that clients have disclosed to us, and that’s a manual process,” Abood said.

“So that’s pretty frustrating for advisers, and that’s what we’re worried about.”

Based on the results of a recent ifa poll, advisers are overwhelming worried by the proposed changes to s99FA of the SIS Act.

Asked whether they are concerned about super fund trustees being required to review SOAs, 86.2 per cent of the 217 respondents said they are, while just 11.5 per cent were unconcerned, and 2.3 per cent were unsure.

The Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Bill) is under consideration by the Senate economics legislation committee, with a public hearing scheduled for 13 June 2024.