Research calls for regulatory shift to address complex financial advice needs
The number of Australians requiring complex financial advice is projected to rise by 70% over the next 25 years, increasing from 4.3 million to 7.2 million, according to new research.
The study, conducted by NMG Consulting for the Financial Services Council (FSC), highlights a gap in the current regulatory framework, which favours default settings over personalised advice, leaving many consumers without the tailored support they need.
FSC pointed out that as individuals age, their financial situations often become more complicated due to factors like wealth accumulation, increased debt, and the need to support dependents. However, the existing superannuation regulation and legislation in Australia largely cater to simple, default arrangements, potentially disadvantaging those with more complex needs.
Blake Briggs (pictured above), chief executive of the Financial Services Council, emphasised the urgency for regulatory reform, noting that the “one-size-fits-all” approach to superannuation regulation is ill-suited to the 70% of the market that consists of engaged consumers who make their own investment choices, often with the support of financial advisers.
“Australia’s regulatory framework needs to evolve to accommodate the superannuation funds, investment platforms, and financial advisers that cater to Australians with more complex financial needs,” Briggs said.
The FSC has outlined a new framework for regulators and policymakers, arguing that the current focus on default products has hindered best practice in regulatory design. The report suggests that a more sophisticated approach would promote competition, reduce regulatory costs, and enhance consumer access to financial products tailored to their personal needs.
The research identified key policy areas where regulatory design could evolve to better reflect the needs of consumers requiring complex financial advice. The ‘Your Future, Your Super’ performance test, for instance, currently applies only to MySuper and Simple Choice products. The report recommends excluding Broad Choice products from this test to account for the role of financial advisers in investment selection.
The Retirement Income Covenant (RIC) is another area where regulators should acknowledge the influence of financial advisers on Choice customers’ decisions and support member choice by recognising that some customers have already made active investment choices and may not need further assistance from their superannuation fund.
The study also suggests consolidating the Member Outcome Assessment into other trustee obligations to streamline processes. In addition, the regulatory framework should recognise that users of Broad Choice products have already set their engagement and communication preferences with their providers.
Lastly, fee templates should be revised to capture the diversity of fee structures across Broad Choice products, making it easier for members to understand and contextualise these fees.
The FSC's report argues that these changes would better align regulation with the needs of a growing number of Australians who require more complex and personalised financial advice.
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