FAAA urges safeguards to stop super nudges being mistaken for advice

In a submission to Treasury, the Financial Advice Association Australia (FAAA) said proposed mechanisms such as “nudges” and “prompts” could amount to advice based on limited knowledge of a member’s circumstances, without the consumer protections attached to regulated advice.

The FAAA said it was particularly concerned about the use of nudges in retirement decisions that “are so important and often cannot easily be reversed”.

It warned these tools must not become “a blunt product sales exercise” and should always include a recommendation that members seek personal financial advice.

“The focus of the ‘nudge’ should be the member’s personal circumstance, more than it is with respect to any financial product,” the association wrote. “Nudges should also not be used as a substitute for genuine personal financial advice.”

The submission urged Treasury to clearly define the boundary between factual information, guidance, nudges, and financial advice.

“The policy settings must make it clear as to the boundary between ‘information and guidance’ provided to a member by a trustee, ‘nudges’ trustees give members, and the provision of financial advice, including general advice and personal advice,” the body said.

It also recommended that any trustee communication framed as a nudge should carry explicit warnings that it is not financial advice and should direct members to seek personal advice before acting.

The concerns come as government prepares to implement the Delivering Better Financial Outcomes reforms, which would allow trustees to provide simple personal retirement advice. The FAAA said this overlap raised the risk that trustees could stray into advice provision without being subject to the same obligations as licensed advisers.

It also warned that terminology in the consultation paper, such as references to “personalised information”, risked further confusion.

“Referring to ‘personalised information’ confuses the boundaries between personal advice and trustee ‘information’. The term ‘personalised information’ should not be used,” it said, noting that the phrase is too close to “personal advice”, which depends on knowledge of a client’s circumstances.

Beyond nudges, the FAAA said the framework must more accurately capture how members access advice. It argued that indicators should not only measure uptake of intra-fund or trustee-offered advice, but also advice sought independently from a member’s own financial adviser.

Without this, published data risked distorting the picture of member engagement and misleading consumers, the FAAA warned.

The association further cautioned against publishing framework data in ways that could be interpreted as a fund performance league table, saying this would “promote a sales-based culture within the superannuation system” rather than focusing on members’ best interests.

Overall, the FAAA backed the intent of the framework – to build on the Retirement Income Covenant and improve transparency – but said its design must not compromise the distinction between education and regulated financial advice.

“Australians must be able to clearly and simply understand when, and to what extent, their specific personal circumstances have actually been considered in relation to information, guidance, offers, nudges, prompts and financial advice that is provided to them,” the submission said.