According to new research for the Financial Services Council (FSC), conducted by NMG, the number of Australians with complex financial advice needs is set to hit 7.2 million in the next 25 years – a 70 per cent increase from the current 4.3 million.
With financial circumstances becoming more complex as people age, the FSC said current superannuation regulation and legislation is “overwhelmingly designed with simple, default arrangements in mind”.
The report, which looked at five policy areas – the “Your Future, Your Super” performance test, the retirement income covenant (RIC), member outcome assessments, member engagement and communication, and fee templates and data requirements – recommended a regulatory approach that “recognises and supports Australians with unique advice needs”.
In short, the report backs an approach based on the principle that Choice products should have wider guardrails, given the understanding that there is a much higher level of consumer engagement and decision making.
“The number of Australians with complex financial advice needs will grow by 70 per cent to 7.2 million consumers over the next 25 years, and the regulatory framework for consumers choosing their own superannuation and investment arrangements needs to evolve to meet their needs,” said FSC chief executive Blake Briggs.
“The current ‘one-size-fits-all’ approach to superannuation regulation prioritises simple, default arrangements, adversely impacting the 70 per cent of the market characterised by engaged consumers making investment choices and supported by financial advisers.
“Australia’s regulatory framework need to evolve to accommodate the superannuation funds, investment platforms and financial advisers that cater to Australians with more complex financial needs.”
The FSC has also released a framework that shows what it said are examples of regulation designed with default settings in mind that are “ill-suited to industry participants that cater to more complex advice needs”.
“A more sophisticated approach to financial services regulation would promote competition and reduce regulatory cost and complexity for choice products and expand consumers’ access to financial products that better suit their personal needs,” Briggs said.
On the “Your Future, Your Super” performance test, the FSC said it should only apply to MySuper and Simple Choice (multi-sector and broad single sector trustee directed options) and not apply to Broad Choice products to “acknowledge the role of financial advisers’ investment selection”.
The enforcement of the RIC, the FSC said, should acknowledge the role of financial advisers in Choice customers’ decision making.
“RIC interpretation should encourage trustees to support member choice and acknowledge some customers have already made an active choice of product/investment option, and do not require significant further assistance from the superannuation fund,” it said.
Member outcome assessment should also be consolidated into other trustee obligations, while the regulatory framework should recognise that Broad Choice product users have already set up and chosen their preferred engagement and communication preferences with their provider.
“Fee templates should capture the range of different fee configurations allowing Broad Choice fee structures to be more easily reported and contextually interpreted by superannuation members,” the FSC said.
It needs to evolve to remove the FSC from having any form of regulatory input.
It needs less red tape, less complexity, less regulation and fewer vested interests.
“Qualified advisers” coming to the rescue soon for the complex advice needs? I don’t think so!