However, having taken a critical eye to the proposal over the weekend, chief executive Sarah Abood said the FAAA “cannot support it without substantial change”.

“This is a pretty disappointing outcome considering the large amount of time and resources that have been invested over three years to finding ways to deliver high-quality financial advice to more Australians,” Abood said.

The FAAA echoed concerns from others within advice on the simplification of statements of advice (SOA), for which it “had high hopes”.

“Analysing the requirements for the new ‘Client Advice Record’ or CAR, we haven’t found a material difference between these obligations and those for statements of advice, in the legislation,” Abood said.

“We were hoping for a much lower level of prescription, and greater recognition of professional judgement, as well as indications as to how the other areas of prescription (notably the impact of ASIC interpretation) would be dealt with.”

‘Concerning on many levels’

However, the association was far more outraged by the parts of the draft legislation focused on superannuation advice, particularly as it relates to collective charging.

“Our single biggest concern in relation to the draft legislation is that it appears to give super trustees the ability to collectively charge for comprehensive retirement advice,” Abood said.

“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.

“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.”

According to the FAAA, there is also a lack of clarity around who within a super fund will be able to offer this level of advice, specifically whether it would apply to the still undetailed new class of adviser (NCA) or only qualified professional financial advisers.

“We have stated elsewhere, and many times, our position that retirement advice should only be offered by licensed professional financial advisers,” Abood added.

“This type of advice is both complex and high stakes for the consumers involved – because if poor advice is given in this life stage, it can be extremely difficult for a consumer to recover their financial position when no longer earning income from personal exertion.”

Professional advisers, she noted, are far more suited to providing this advice “safely”, as they have the education, experience and ethical obligations necessary.

“If we are saying these are no longer required for such an important facet of consumers’ financial affairs, then this undermines the whole point of professionalising financial advice,” Abood said.

“Also in this section, there doesn’t seem to be any positive obligation on trustees to offer advice in important areas of retirement to consumers such as estate planning, aged care and age pension (including the Home Equity Access Scheme) – although they may choose to do so. These are areas where the super fund has no particular incentive to offer any advice as it does not impact on assets in the fund.”

‘This is not advice, it is product sales’

The scope of advice wasn’t the FAAA’s only issue with the superannuation-related changes, also taking aim at the ability for funds to accurately target specific cohorts in the way the legislation envisions.

“The draft legislation also provides for super ‘nudges’ – referred to interchangeably as ‘(general) advice’, ‘super product advice’ and ‘prompts’ in the documentation,” Abood said.

“It requires trustees to develop a framework that can be used to target groups of members (which can be as small as two members) with ‘advice’ that suits their cohort as a collective – rather than any individual in the cohort.

“While there’s a list of characteristics given that could be used for cohorting (such as age, income, home owner status, relationships status etc), the reality is that super funds generally don’t hold much of this information on their members.”

According to the CEO, this important and costly area is one in which professional advisers provide the most value, through helping clients pull together all of the information necessary to build a “comprehensive picture” of their current position and future goals.

“Cohorting members based on anything other than age is going to be very difficult for super funds to achieve at present, without the support of a dedicated data collection function – across, for some funds, millions of members – which would presumably be collectively charged,” Abood said.

“Overall, our concern is that these provisions could be used to effectively ‘staple’ a member to their super fund for life, with no trigger for the member to consider whether the current fund is still the right one for them in retirement, and no support for their retirement needs beyond an allocated pension and/or annuity. This is not advice, it is product sales.”

The FAAA noted that the remaining DBFO measures that were carved out of the legislation – including the NCAs and modernisation of the best interests duty – are important to the current draft.

“We will be consulting with members on the detail of this package over the course of March and April, in order to finalise our submission by 2 May,” Abood said.

“We remain committed to ensuring that these reforms can achieve their stated policy intent, to deliver high quality and affordable advice to more Australian consumers.”