The Actuaries Institute has called for the adoption of a new framework that factors in the provision of ‘help’ and ‘guidance’ alongside personal financial advice, but places SMSFs in a high tier for complexity or risk.
The framework was detailed in a paper, “Financial Advice Reform and Help, Guidance and Advice (HGA)”, released yesterday by the institute, which stated it would work alongside the pending Delivering Better Financial Outcomes legislation.
Under the proposal, consumers would be able to access assistance under three definitions that increased in complexity and specificity, with the first being ‘help’, which would be basic factual information, tools and calculators to better understand various services and processes.
Secondly, ‘guidance’ would allow for the provision of suggestions or directions based on a person’s general circumstances, such as paying off debt, budgeting and cash-flow planning, life insurance cover, retirement planning and income needs in retirement.
Finally, ‘advice’ would retain its definition of personalised, professional recommendations that consider a person’s financial situation and goals.
The paper noted personalised financial advice had a range of risks and complexity and suggested it also be tiered according to those factors, with regulatory controls increasing accordingly, and placed SMSFs in the high-risk category.
“This tiering would also recognise that the risk of potential consumer harm increases with complexity. We could have the following tiers,” it stated.
“Simple (low risk) – this could include advice about the amount of life insurance needed, the treatment of contributions within a superannuation fund, budgeting and saving through safe products.
“Normal (medium risk) – this could include deciding on an investment strategy, moving onto an investment platform and setting up separately managed accounts.
“Complex (high risk) – setting up an SMSF, geared investment and international investments.”
Actuaries Institute non-executive director and chair of its HGA working group Andrew Gale said the framework was required as current regulations treat all financial advice as equally complex and do not differentiate between what is simple guidance compared to comprehensive planning.
“Our framework provides the architecture that will enable millions of people of all ages to receive support in different levels of complexity and that fits their individual needs,” Gale said.
“We have a tsunami of retirees coming over the next decade, but many don’t want or need or cannot afford full, comprehensive financial advice.
“Giving them help and guidance on common issues – such as age pension entitlements, and how to think about paying down debt and moving superannuation to a retirement-phase account – would allow them to retire with greater confidence.”
