An unintended consequence of 20+ years of non-stop regulatory change in financial services is that fewer Australians have access to financial advice.
The government’s Quality of Advice (QoA) Review is seeking to rectify this by examining how the regulatory framework can better enable the delivery of high-quality, accessible and affordable advice.
However, the initiative that has the greatest potential to move the dial in terms of getting quality advice to the masses is notably absent from Treasury’s Issues Paper.
There is no mention of workplace financial advice.
Over the past 30 years, Australia’s once thriving corporate superannuation sector has been decimated with only a small number of players specialising in workplace advice, despite the enormous need and demand from employees, employers and industry funds.
At the turn of the century, hundreds of advisers serviced corporates, providing a broad range of services to employers, individual employees and the collective workplace.
They played an important role in improving the superannuation and life insurance outcomes of working Australians.
At the employer level, they helped select a suitable super fund and manage that relationship.
At the employee level, they helped members secure life insurance at competitive rates, and provided general and personal superannuation advice. That included on-site seminars, educational resources and, for those who needed it, one-on-one meetings and financial counselling.
Historically, those services were paid for by the corporate super fund in the form of commissions.
The model was not dissimilar to life insurance, where a large number of people with similar risks are pooled together to support the small number of people who will need to claim.
With corporate super, the commission covered the cost of general advice and, for those who needed it, personal advice. In any given year, the majority of members didn’t request personal advice but when they did, it was available to them.
But changes to adviser remuneration and cross-subsidisation, under the Future of Financial Advice (FoFA) Reforms, in tandem with the MySuper reforms, dramatically reduced access to workplace advice.
Now the government has an opportunity to create a more supportive regulatory framework.
This is not a call to reintroduce corporate super commissions. Those days are over.
Too many advisers were paid for a long time to do very little.
Similarly, this is not a push for corporate super funds. Too many were subscale, poorly run and failed to deliver optimal outcomes.
However, any refreshed regulatory framework should seek to reduce the compliance burden on financial advice businesses, without reducing consumer protections, to support different advice models.
At a fundamental level, there must be greater clarity around what constitutes general advice (or information) and personal advice.
Amending the Corporations Act 2001 to resemble the Financial Services Council’s proposed definition of personal advice as only advice that considers the “personal circumstances of the individual” would encourage employers and industry funds to develop and deliver more valuable advice.
Regulatory change that increases the ability of funds to provide general advice should balance the government’s objective to reduce the extent to which the retirement savings of members is eroded by the cost of providing financial advice with its goal to improve advice accessibility and affordability.
Universal employee benefits
In the field of human resources, a positive development has been the proliferation and expansion of employee benefit programs.
Organisations increasingly understand that employee benefit programs are a way they can demonstrate their support for their people, alongside traditional benefits like pay, professional development, and career progression.
However, employee benefit programs in Australia typically focus on parental leave and retail discounts. All government departments and most large organisations also offer an Employee Assistance Program (EAP) to give staff access to professional counselling and support for personal or work-related issues.
While these services are important, only a very small percentage of staff typically use EAP.
Australia’s compulsory superannuation system makes it imperative for employers to focus greater attention on universal benefits like life insurance and financial planning.
The impact of helping people manage their money early in their career cannot be underestimated, given the power of compounding returns, yet there is not enough education on the basics such as how compounding works, diversification and asset allocation.
As an industry, a disproportionate amount of attention is given to pushing the SG to 12 per cent but not enough attention is given to lifting financial literacy. Employers and funds should also focus on educating workers and helping them make smart decisions early on in their career.
Gareth Hall, chief executive officer and senior financial adviser, Lifestyle Financial Services
Licensees have banned their advisers from investing in anything other than indexed managed funds (you can’t time markets and addiction to indices and tracking errors. Newsflash. We are back in the 1970s where the current playbook will fail. Cost of living went up 194% in the 1970s and equities went sideways.
From 2000-2020, the low inflationary index funds were ok. Not anymore. These highly correlated investments will lose 80% shortly and bonds have lost 34% already. Clients will say why wasn’t I put in gold and commodities? Advisers will be required to do more mandated training (fund managers get off with no consequences) costs will go up again, reputations will suffer. The bottom line is that if advisers are responsible for taking the heat on investments that fail, they should have access to a wide range of investment options. I see a massive shift to SMSFs and independent licensees. The pendulum swings back.
There still is quite a lot of workplace advice happening. It is conflicted, illegal, advice, given by union super sales reps. It usually consists of “switch all your other super to our fund because we don’t pay commissions”.