FAAA calls for stronger consumer protections in advice reforms

The Financial Advice Association of Australia (FAAA) has opposed collective charging for "always complex and costly" retirement planning advice and emphasised the need for consumer protection in the provision of super nudges in its submission to Treasury on the Delivering Better Financial Outcomes (DBFO) Tranche 2 Part A draft legislation.

The FAAA supports the government's goal of increasing access to financial advice, however, stressed that retirement planning advice involves diverse client circumstances, complex products, long-term horizons, numerous interdependencies, and multiple risks, with high levels of expertise required to deliver it.

"Retirement planning advice has a substantial and often irreversible impact on the client's overall financial position. The FAAA recommends that transition to retirement and retirement advice be explicitly excluded from any definition of simple advice," it said.

The association also called for allowing professional financial advisers to demonstrate professional judgement, rather than follow prescriptive and restrictive checklists.

It noted that despite a series of major reforms, including the Future of Financial Advice and Professional Standards, disclosure obligations in Statements of Advice haven't evolved to reflect advisers' professional judgement requirements.

"A principles-based approach and reliance on professional judgement in the law will legally put clients, not compliance, at the forefront of the provision of financial advice," it said.

Regarding advice through super, it reiterated that it opposes enabling retirement advice through collective charging because "it's complex and critically important."

"It shouldn't be provided by people who do not have adequate qualifications and experience and in an environment where there are significant limitations, including with respect to the product options that are available... it's important that retirement advice cannot be provided by the New Class of Provider," the FAAA said.

It also argued against collective charging of retirement advice because it gives a substantial anti-competitive price advantage to other super funds compared with other providers of financial advice. It also cited that super funds' retirement products would be "substantially insulated from competition."

Moreover, collective charging for retirement advice would require many members to pay for a service which they have no potential to benefit from for many years, it added.

"Members who've already paid for their own professional financial advice shouldn't be expected to pay for the provision of retirement planning advice to other members of the fund via collective charging. That's a form of double charging and quite unreasonable," it said.

Meanwhile, it said that it should be mandatory that a super nudge include a statement that the prompt doesn't consider the member's individual circumstances, and that they should seek personal financial advice from a professional adviser before acting.

Further clarity is also required on what recourse members will have, if they suffer a loss because of acting based on a nudge, it added.