Retirement planning is far too complex to be supplied by superannuation funds via the simple advice model proposed by the government under the Delivering Better Financial Outcomes (DBFO) reforms, according to the Financial Advice Association Australia (FAAA).
The association made the claim in its submission to Treasury regarding the draft legislation Tranche 2 of the DBFO and threw its support behind simple advice that could be delivered on a collectively charged basis, but rejected the idea retirement planning could fit under that model.
“Retirement advice is not simple and hence should not be collectively charged,” the submission said.
“Whilst the form of retirement planning advice that may be provided under these proposals is restricted to the sale of retirement income products and associated strategies, it is nonetheless going to be complex and costly to provide.
“It is also critically important advice, in that it is setting a person up for the duration of their retirement. Those preparing for retirement only get one chance at getting this right.”
The FAAA indicated advice should not be provided to people without adequate qualifications and experience, nor be relayed by the new class of provider, and its provision generated advantages for superannuation funds.
“The proposal provides a legislated cost advantage to super funds by allowing such entities to provide this advice at no additional direct cost,” the submission stated, adding professional financial advisers had to personally meet regulatory requirements and charge each client directly to cover the costs of providing advice.
“[Collective charging] gives a substantial anti-competitive price advantage to super funds compared with other providers of financial advice and because super funds’ retirement products would be substantially insulated from competition.
“The fund will only recommend its own products to its members via collectively charged advice – effectively removing their retirement income products from any competition, irrespective of whether their products are actually well priced or providing a good level of service.”
The FAAA also highlighted the cost of providing retirement planning advice would also significantly increase the expense of running an intra-fund advice business and would have flow-on consequences for members of the fund.
“This will result in significant cross-subsidisation within the fund with younger members paying for the personal retirement planning advice of older members,” it noted.