‘That’s not advice, that’s sales’: SCA tees off on DBFO tranche 1.5

Super Consumers Australia is the latest group to express its discontent with the next stage of the Delivering Better Financial Outcomes (DBFO) reforms, continuing its long-standing disapproval of financial advice being entangled with superannuation.

Just ahead of the federal election announcement in March, then-minister Stephen Jones released the portion of the reforms that was ready to go – despite some notable omissions.

One of the main points of contention following this release, as expressed in a range of submission to the subsequent consultation on the draft bill, was the expanded ability for super funds to provide retirement advice.

Financial Advice Association Australia (FAAA) chief executive Sarah Abood, for instance, called the apparent ability for trustees to collectively charge for comprehensive retirement advice was the FAAA’s “single biggest concern”.

“This is concerning on many levels. Firstly, the cost of collectively charged retirement advice is likely to be very much larger than the cost of collectively charged intra-fund advice,” Abood said in March.

“Thus, members of these funds will be paying much higher amounts for advice they are not actually receiving – including members who have sought, and paid for, their own personal financial advice but must still pay for the collectively charged advice provided to other members of the fund on top of that.”

In its recently released submission, the SCA similarly argued against the expanded role of super funds in the provision of retirement advice, saying it would only support the reforms on the condition that the government introduces a broader package of necessary reforms to safeguard Australia’s retirement framework.

“Australia’s retirement income system is not delivering an adequate standard of living for all retirees,” it said.

“For some people, this is driven by the complexity of converting their accumulated superannuation into an income, and a lack of accessible guidance and safe default products to make this easy. Other people simply do not have enough resources, and face disadvantage and poverty in retirement.

“Financial advice may be helpful for some people in planning for retirement - but without access to high quality, fit for purpose retirement products, the outcomes consumers ultimately achieve will not change. The accumulation phase of super has a suite of in-built safeguards, including default products, performance testing, and compulsory saving.

“However, equivalent safeguards are almost entirely absent in the retirement phase. The value of any advice a member gets from a super fund about retirement products will be limited to the quality of the options actually available in that fund.”

In its submission on tranche 2 of the Delivering Better Financial Outcomes the Super Consumer’s Association said although financial advice may be helpful for some people in planning for retirement without access to high quality, fit for purpose retirement products, the outcomes consumers ultimately achieve will not change.

“The accumulation phase of super has a suite of in-built safeguards, including default products, performance testing, and compulsory saving,” it stated.

“However, equivalent safeguards are almost entirely absent in the retirement phase. The value of any advice a member gets from a super fund about retirement products will be limited to the quality of the options actually available in that fund.”

Rubber stamp for product sales

Among its strongest positions is that what the bill allows essentially boils down to product sales, not financial advice.

Arguing that the proposal goes considerably beyond permitting “simple and cost-effective advice about retirement”, SCA said it permits advice about retirement products.

“Because most funds only offer one retirement product, this reform just rubber stamps funds using the intrafund advice model to drive product sales and trap members in poorly performing products,” the submission said.

“Advice about retirement products is only helpful if members have meaningful choice among a range of high-quality products – but that is not the current reality.”

According to SCA, 69 per cent of the funds that offer open retirement products only offer one product, adding that this is generally an account-based pension.

“Funds cannot provide advice about retirement topics outside of super and they will not provide advice recommending a member take up a product offered by another fund. That means they are only providing advice about their own retirement products,” it said.

“The only possible recommendation a member could get through this model is to move into that one product, which might not be appropriate for every member (e.g. if they wanted longevity risk protection). That’s not advice – that’s sales.”

Additionally, the submission argued that there would be “significantly less consumer harm” related to this if there were a MySuper-like system in place ensure that all retirement products were high quality.

“There is considerable consumer harm in a member getting conflicted advice to move into a poorly performing, expensive product – particularly given that it is impossible to get out of some retirement products after the cooling off period (typically products that have longevity protection),” SCA said.

Ultimately, the advocacy group said the system overall needs to be reformed, and access to advice won’t make it any safer.

“Australians should not have to become superannuation experts or seek comprehensive financial advice to receive decent outcomes in retirement,” it said.

“The accumulation phase of super has a suite of inbuilt safeguards, including default products (backed by the MySuper authorisation regime), performance testing, and compulsory saving (the Superannuation Guarantee). However, equivalent safeguards are almost entirely absent in the retirement phase.

“The government needs to make the system safer by design, such that there are good options for financial advisers to recommend and so that people who do not get advice (because they do not want it or cannot afford it) are not left out in the cold.”

SCA has a longstanding opposition to super funds providing advice – or indeed allowing fees to be deducted from super to pay for advice.

In its submission to the Senate economic committee’s inquiry into the first DBFO bill last year, SCA stated it doesn’t “support the deduction of advice fees from superannuation accounts” at all.

“Super Consumers Australia has previously outlined that people may be more likely to value advice if they have to actively pay for it from their own pocket, rather than have fees deducted from their super account,” it said.

“There was compelling evidence in the financial services royal commission and the ‘fees for no service’ actions brought by ASIC that there is a high risk people will be ripped off if fees can be charged from super with limited oversight.”