According to the Joint Associations Working Group, the government’s proposed super member protections reforms will introduce substantial complexity into the advice process while doing very little to prevent the kind of behaviour that led to Shield and First Guardian.
In a submission, JAWG noted that while some of its representatives have taken individual positions on Treasury’s three-pronged reform package, there was unanimous opposition to two particular proposals.
The first was the introduction of mandatory waiting periods for advice related to superannuation fund switching. Under Treasury’s proposal, a member who requests to transfer their super to another fund will need to confirm their request after a set delay – five days was floated in the consultation paper – and if the transferring fund doesn’t receive that confirmation, the request will lapse after three business days.
The consultation paper suggested that this would give super funds time to inform members when a switch would lead to adverse regulatory outcomes or exposure to higher-risk products. It would also, Treasury said, protect members from “high-pressure sales tactics” used by lead generators and financial advisers.
Per the JAWG submission, though, unscrupulous operators will simply “adjust their sales scripts and tactics” to accommodate the new waiting period.
“These measures would introduce significant friction, cost and operational complexity into the advice process while doing little to address the underlying causes of the harms identified in recent cases,” JAWG said.
The submission noted that, based on AFCA determinations relating to Shield and First Guardian, customers were typically “courted by lead generators over months” and would therefore not have benefited from the proposed cooling-off period.
This ties closely into the second proposal JAWG opposed: the banning of fee deductions for advice related to super fund switching.
Were this implemented, trustees would be prohibited from deducting advice fees when an associated SOA recommends transferring all or part of a member’s super balance to another fund. And before making such a recommendation, advisers would need to disclose that the member would be paying for the advice out of pocket.
Treasury said this would reduce commercial incentives for advisers to recommend “unnecessary or inappropriate switching” and encourage them to focus on more “strategic issues” such as retirement planning – but JAWG isn’t convinced.
“Assessing whether a member’s existing superannuation arrangement remains appropriate, having regard to their objectives, financial circumstances and needs is a fundamental component of comprehensive personal financial advice and good consumer outcomes,” JAWG’s submission said.
It continued: “Measures that effectively discourage advisers from providing switching-related advice risk undermining access to financial advice and limiting consumers’ ability to receive professional guidance on one of their most significant financial assets.”
Rather than “imposing additional process requirements that apply equally to compliant advisers and consumers,” JAWG said Treasury should focus on identifying misconduct and enforcing the laws that already exist.
