Sarah Abood:
Today, the minister is going to speak for about 10 to 15 minutes share his thoughts and his observations on our sector and current issues. The rest of the session, I’ll be asking the minister questions that have been sent through by you our members over the last few weeks, certainly plenty of those. So let’s get underway and please join me in welcoming the minister.
Daniel Mulino:
Thanks very much, Sarah, can I begin by acknowledging the traditional owners of the land that we were on and pay my respects to their elders past and present. Can I also acknowledge that we have here today, my parliamentary colleague, Pat Conahan, and say that it’s been really good to work with Pat in a constructive way in my time in this portfolio.
We’re both in a portfolio which has a very wide range of issues, as everybody in this room knows. And there are undoubtedly going to be areas where there are disagreements at the margin from time to time, but there’s a lot of scope for common ground. And I’m really looking forward to working closely together in the parliamentary sphere over the course of the term, and want to acknowledge the really positive spirit with which we’ve started on that front.
Can I also acknowledge Sarah and the role that you play as CEO of the FAAA and David Sharp as the Chair. And just to say that the FAAA has played a very constructive role as an advocacy organisation, but also as a thought leader and an organisation that contributes very significantly in the public policy realm in relation to a lot of very complex issues.
And can I also just say that it’s wonderful to see a packed crowd here. It’s very energizing, but it also reflects the importance and diversity of the financial professional, financial advice profession. And looking at these sponsors and the supporters of this event, it shows you the breadth of financial advice within the financial services sector more broadly, and the importance of what you do.
And can I also acknowledge that we have a wide range of regulators here, and I think it’s important to acknowledge that, because I think that the role that they play is key, and it’s really important, I think that we work out our regulatory system and the conduct of the regulatory system, the way that it operates in practice, in close consultation with the sector to make sure that we’re doing that in a way that will work in practice.
But I do want to acknowledge the important role that the regulators who are here today and throughout the course of today play ASIC, AFCA, CSLR and other organisations.
Can I just begin by saying that what you do is very important in our society. You provide assistance to people in relation to some of the most important decisions that they make, decisions that affect their accumulation of wealth, but also the ways in which they manage risk and the ways in which they manage their consumption over their life cycle. And if anything, the role that you play is only growing in importance over time, as we see people’s overall assets on average increase.
This is due to a wide range of factors, including, for example, that the Superannuation Guarantee has been increasing over time, but just the accumulation of financial and other assets over time. But what you’re doing is helping people to manage those very significant assets for growth, but also to manage them over their life cycles. I think it’s also worth noting that what you do is so important, given that people are retiring for longer. And I think that really is an incredible opportunity for people to have hard‑earned years of leisure, but it does require significant planning, given the length of retirement, but also some of the uncertainties it creates.
But also, I’d say that what you do is incredibly important because of the growing complexity of financial markets and of some of the asset choices that people make. So I just want to start with that point that I’ve seen firsthand, talking to people, engaging with people in my life, people who have received good advice and benefited substantially from that. I do want to acknowledge that the number of advisors, as you well know, in this room, has been dropping for quite a period of time, and that is a structural challenge that I think we all need to work together to deal with.
I want to acknowledge that that’s something that we need to deal with in order to make sure that that important advice is more accessible and affordable. And there are a range of issues that I’m keen to work with the sector on, including education standards, including some of the reforms around DBFO, including the CSLR, and both the kind of administration of the CSLR over the coming years, but also some of the post implementation issues that will arise. So all of those are kind of complex, interrelated issues, but I just want to stress that the availability and affordability of advice is a key issue.
I did want to touch on some of the issues around Shield and First Guardian, because that’s not they’re not the only collapses that have occurred, but they are major collapses, and they do bring to the forefront some of the other issues that I just touched on, the availability of advice, the way in which advice and other parts of the sector are regulated and CSLR. So I just want to touch on a few aspects of that.
I do want to say that I’ve met with some of the victims of those collapses, and it brings home to bear how confronting it is and how much despair it can cause in for individuals and households when things go wrong.
Today, I don’t want to touch on particular policy issues, but I do flag that I’m going to work closely with the FAAA and other parts of the sector moving forward as we work through specific responses. But I just wanted to touch on a few guiding principles.
The first high level principle is that consumers should expect to be able to invest in our super system with confidence. I don’t think anybody in this room would disagree with that, but I do think it’s worth stating from the outset that that’s an important guiding principle, and we need to make sure the system is set up so that people can maintain that confidence in the system. It’s an important underpinning.
The second point I want to make is that recent collapses, and I do draw around Shield and First Guardian in particular, do highlight what I would describe as a very large‑scale and complex interaction between what I would call bad actors, potentially in some parts of those schemes, and vulnerable consumers.
These kinds of schemes aren’t entirely new, but I think there are elements of what we’ve seen that appear to be concerning and that we need to look through in detail. I think the FAAA, among with other stakeholders, have pointed out that there’s no one point in the ecosystem that is the cause of what we saw with Shield and First Guardian. And I want to stress that from the outset, I think we need to look at this holistically if we’re going to come up with sensible answers.
And if we look at Shield and First Guardian, I have to caveat by saying that some of these actions are under review in the courts and in other forums, so I’ve got to be careful in coming to conclusions. But I would simply flag that at least it appears that there may have been failures in a wide range of areas, including originators who have reached out to customers and behaved in ways that may have been inappropriate, including lack of oversight by platforms of products on those platforms, including potentially some of the investment advice, including potentially the actions of some financial advisors, and including the managers and producers of some investment products.
So there are many points that we need to look at, and I would simply flag that it’s certainly not an issue of advice alone, but I think that there are parts of what occurred that do involve advice. And so we’re going to need to look at all of those different elements of the ecosystem. And I think an ecosystem approach is the right way to think about it, in that we need to think about strengthening our protections in a range of areas.
The third overarching principle I wanted to flag is that regulation needs to be designed to have the maximal, targeted impact on those parties that are either doing the wrong thing because they’re breaching duties or doing the wrong thing because they’re intending to and have the least impact on the vast majority of people who are doing the right thing. And I know people in this room reflect the people who are doing the right thing.
Now, again, that’s an obvious principle in a lot of ways, but I do think it is worth stating, because we struggle with this regulatory conundrum in many areas. I think it’s certainly present here that we want regulation that catches those actors who are doing the wrong thing, and sometimes intentionally.
But I will certainly be trying to look for solutions that have the minimal impact we can on the vast majority of people who are doing the right thing, providing those critical services to people that I talked about before, making sure that they’re well informed in some of the most important decisions of their life.
The fourth principle is to say that choice is important. And again, people in this room know that so well, that choice allows individuals to tailor their investment profile to their individual circumstances, to their individual preferences, but that when you’re in a choice environment, there will need to be some guardrails. And so that is, again, one of the trade offs that we’re going to have to navigate. And I look very much to working with the FAAA and people in this room to figure out how we navigate the complexities and nuances of that trade off.
The fifth principle is that we need to figure out ways to use technology to provide greater protection. Now we already doing that. I know that you’re doing that, and the regulators are already doing that, but we also know that we’re, in a sense, in an arms race. And we don’t just see it in this instance. We see it with scams. We see it in a whole range of areas where the perpetrators of actions that we don’t want to see are constantly trying to use technology to their advantage, and so we need to constantly figure out ways to use technology to our advantage. And I think there are ways that we can do that which are not overly cumbersome or complex.
I think there are ways, for example, where we can share information better between parts of the sector and regulators and catch actions faster. I think these are things that we should be looking at. There are some ways in which we can use technology, in my opinion, which are low cost and straightforward. And these are things I think that we should be exploring as first steps.
And again, I look to some of the work that my predecessor put into place in relation to scams, where the financial services sector and the regulators are now sharing information in very proactive ways, and it’s worked very effectively to pre‑emptively stop certain actions. So I just want to flag that that’s an area where I’m very keen to work with the sector to understand what might work in practice.
And the final thing I wanted to flag as an overarching principle is that compensation is important, but it’s complex. Now, again, that’s no news to people in this room. We do have quite sophisticated channels of compensation already, and that compensation can arise from, for example, pre‑emptive actions on the part of regulators, to intervene in situations where there are red flags and to freeze funds or stop actions. And that’s something I think that we need to strengthen as much as possible, because that’s the first step that is going to benefit consumers most clearly.
The second one is actions by regulators that can seek compensation. And I think we look to the Macquarie agreement with ASIC as an example of that. Then there’s AFCA determinations, which can follow on down the track from there. And then, of course, there’s the CSLR. There are other potential avenues which have been highlighted in the media, such as part 23 of the SIS act.
I just flag all of that to say that there are a range of compensation mechanisms, and that’s a good thing. They will, I think, in this instance, lead to many people receiving a significant amount of their capital back. But I think it’s also worth acknowledging that those compensation mechanisms can be complex to navigate, and can take time. So this is something we need to think through.
The other thing I would flag, and I just want to put it on the table, and I’m very conscious that the CSLR is a part of that compensation set of options. It is a backstop, but I also want to acknowledge that it is coming under strain. And again, people in this room are aware of that. I just want to reinforce to you, I’m aware of that also, and it’s going to take careful action over the coming years to step through how we deal with the funds that come through to the CSLR. But there’s also in parallel with that, CSLR post implementation review, which I will work through in conjunction with the sector.
So I just wanted to flag some of those high level principles to highlight some of the work ahead for all of us.
I just want to conclude by reiterating that I see this sector as critical as a part of the financial services sector more broadly, but also as an area where people receive advice on incredibly important life cycle decisions they’re making.
I think that it’s also a sector with incredible opportunities for productivity growth. I’m really interested to hear from the sector on ways in which you plan on using AI. For example, recently in the 3‑day Economic Reform Roundtable, the use of AI was flagged both by government, but also in industry more generally. And some of the ways in which you’re already using AI, but which I feel you will even more in the future.
For me, are really exciting opportunities for making advice higher quality, but also far more accessible. And there’s a lot of upside and blue sky I feel in the years ahead to build on the already important work that you’re doing. So on that positive note, I just want to flag that I’m 6 months into this role, but really looking forward to the years ahead and working with you on making sure that advice continues to be high quality and that it continues to be even more accessible and affordable for a wide range of people in our society. Thanks.
Abood:
Minister, thanks so much for those remarks, and really appreciate your time coming here in person to engage with our members is something we’re really grateful for. We put the call out a couple of weeks ago to members who are coming along today on questions that they’d like to ask you, and we’ve certainly got plenty of suggestions.
There’s a couple of key things that are common to many of these questions. And one that was coming up really frequently, and you alluded to a new speech is advisor numbers. It’s looking like a bit of a fiscal cliff. I guess something you’re very familiar with with numbers, nearly since 2019 we’ll know that we’ll lose more at the end of this year. And that’s against the backdrop of something of the order of 700 Australians retiring a day, potentially going up to 800 in the next decade. So is that something you’re aware of, concerned about? Would you like to see more professional advice? What do you think are the things that we could be working on to achieve that?
Mulino:
Yeah, I think it is a very significant issue. And I mean, as you say, Sarah, there are 700–800 people retiring a day. I think the other statistic I’ve seen is that 2 and a half million people at or nearing retirement. And so retirement isn’t the only time when people need advice. There are other key points in their life. I mean, sometimes when people need advice, it might be early on in your life, when you’re, you know, deciding what kind of super account to take. Or it might be when you have a life event, like a separation, marriage separation, but retirement is clearly one of those moments. And the fact that so many people are approaching that, I think, does raise the fact that we need to make sure that not only do we address the decline in the number of advisors, but that we turn it around.
And I guess the other thing I’d say about retirement is that there’s a strong argument. I think that there are other points in life where you need advice, such as accumulation phase, decisions like, how much risk should I take on, what kind of product should I be? But I think there’s an argument that at the retirement phase, they were complex decisions, because you really got to take into account somebody’s personal circumstances, all of the other assets they own, their family circumstances, obviously their risk preferences, and so much else. So I think when it comes to dealing with those issues, I think the education standards is a significant part of that, and that’s something I know that the sector has been dealing with government on for quite a while.
I’m really keen to work with the sector and stakeholders more broadly on ways we can put in place more pragmatic standards that will help to see more people want to obtain the qualifications to become advisors. And then there are the other issues that we need to think through, the more structural issues like DBFO and CSLR and all the other kind of important regulatory issues. And I just think we need to manage those in part with an eye to how we have more people in the profession.
Abood:
And look, I think you mentioned education standards, and I think you’re referring to the proposal to make that standard for new entrants more flexible, so still at university level, but perhaps recognizing more of degrees that might have been completed in the past, perhaps and are relevant to the profession of financial advice. I think there’s a consultation happening, or perhaps starting soon, on the next phase of those year changes.
Mulino:
So look, I think we’re quite advanced in that, but we’re continuing to step through that. And yeah, I mean, look, I actually lectured at Monash uni for a while and in economics, but I actually worked with professors who worked in the finance department. So I mean, I’ve seen up close, you know, a lot of the courses that we’re talking about possibly being included, and they’re highly relevant to what financial advisors need to advise on. So when I look through the options that we’re thinking through, it made sense to me that we need to be a bit more flexible. I think a lot of the courses that are identified in the process, I think are highly relevant to what you advise on constantly.
Abood:
Okay, that’s good to hear. And this is something that we’re working on as much as we can, because our new entrant numbers are sitting at 300–500 a year. So that this would be a great way for us to expand the cohort of people that could come to financial planning and not have to junk the first year of their accounting degree or something of that nature. So yeah, really, really pleased to hear that. Thank you.
Another question that came up really frequently in what our members sent to us was the matter of Shield and First G\Guardian. We spoke about it yesterday. I think it’s really top of mind for our sector. I mean, a this could be pretty big. It could be up to $1.2 billion that 12,000 consumers are losing. And there’s a wide range of sectors involved, is not a simple failure. And I know that you’ve been engaging with the regulators about this and looking at some reforms that might be put in place that would recognize what we found here and prevent collapses like this in the future. What’s your current thinking on that? What do you what are your – how are you going about the process of coming up with policy reform that would deal with this?
Mulino:
Yeah, so look the starting point. And I suppose why I tried to set out those principles is to say that, you know, this is a very complex set of issues, and I think for me, it’s useful to start with some of your overarching principles. And I think, you know, starting with the principle that people need to be able to invest in the sector with confidence, I think that’s important. And then I won’t run through all of the principles I outline, but I think it’s important to kind of figure out what it is we’re trying to achieve.
The second principle which I outlined, and I think goes to the point that you just raised, was that in Shield and First Guardian, we saw, at least by appearance, what we’ve seen so far, and I just want to be careful about being too declarative, because these things are for the courts, but certainly it appears that there may have been failures at multiple points. And so I do want to make the point that it’s not just advice, even though, when we, for example, talk about the CSLR, these losses will be identified as part of the advice sub sector. It’s not just advice.
There are multiple points where protections didn’t work, which we need to investigate. But I also need to be upfront and say that it also appears that in some instances, in some instances, at least advice wasn’t provided in a way that it should have been. And so again, that’s not the people in this room.
That’s a minority, but that’s where we need to think through. How do we ensure that regulation can capture those actions? But certainly, I think a point that the FAAA and others have made is that when we look at things like Shield and First Guardian, we shouldn’t just focus on one part of the sector that that isn’t going to be the right approach. And I broadly agree with that.
Abood:
There’s certainly the acknowledgement that the financial advice that was involved in this matter certainly doesn’t look from what we’re seeing in the courts and the ASIC actions, that there’s no doubt that it contributed. And I think the concern is from our members that this was a really small minority of people that have done the wrong thing. We want to make sure that we’re not acting in a knee‑jerk reaction to the actions of a few.
And there’s been a sense, I think, from from advisors, that the whole sector has had to call up a whole lot of regulation because of a few rogue actors. And maybe, maybe what we need to be doing, or what we need to be focusing on, is how we get better at finding those rogue actors and dealing with them earlier, almost a prevention approach, if you like. And maybe that’s based on data flows, maybe that’s based on enforcement approaches, but deal with these things before they get to $1.2 billion I guess.
Mulino:
No, I think that’s right. And so when I touched on compensation, I touched on the fact that there are multiple streams of compensation at the minute, and when we can investigate where the bits of that need to work differently. But what I would agree with is that prevention is far better than compensation, mainly because that stops people having to go through these traumatic situations. But secondly, because if we don’t go down the prevention path, then we are going to end up in a compensation arrangement which is not sustainable, so prevention does need to be the focus.
Second point is I agree that in figuring out how we try to strengthen prevention or achieve more prevention, we don’t want knee‑jerk reactions. I totally agree. So we are stepping through policy options carefully and as a part of that, I’ve got my department working on a wide range of options.
I’ve written to APRA around ways in which platforms can be regulated in a way which achieves more prevention through stronger onboarding and due diligence arrangements. They also just completed a thematic review. I’ve also written to ASIC around capital standards for MISs. But there are also obviously a range of other ideas around MISs. In the public realm, including issues that the chair of ASIC has raised. But there are a number of issues around MISs that have been in the public realm for some time.
I think the point that you just touched on Sarah around information flows, to me, is critical. I think that no matter where we go on those other fronts, for me there, there are some low‑hanging fruit options where we could share some information about flows of people across platforms, into MISs. For example, in real time, without necessarily going into all the detail of what’s in every single MIS. I think there are ways we could explore better information flows that would materially help on the prevention front.
I do think that, as you say, we need to make sure that we regulate in such a way that we target protections and prevention on that small minority of bad actors. But as I alluded to in my remarks, that can be tricky in regulation, like we are constantly trying to design regulation so that we target what we’re doing on those who are intentionally looking to act in a way that is not an interest of consumers.
We try to target that as much as possible, but sometimes in lifting overall standards or in strengthening prevention, it will capture the overall population. And this is the trade off we have to navigate. So I think prevention is definitely my focus. I think that is very much in the interest of consumers, and ultimately it’s in the interest of the profession, because we need to make sure that consumers have the faith that they should have in professional financial advice.
Abood:
And of course, the superannuation system is opportunity speech earlier that I think we would heartily agree that consumers have a right to be safe when it comes to their life’s savings and their savings for retirement. And that’s something we really would be part of. You touched on the CSLR and the compensation mechanism earlier, and that’s probably the single topic that we got the most questions on for this session.
And also, we had a 75 minute session yesterday, which was an open‑floor Town Hall, and we would have spent the lion’s share of it on the CSLR. There’s no doubt that that that scheme and the impact it’s having on advisors is probably an important issue for our members right now, and you have some key decisions to make on the CSLR. So we have the special levy for financial year 26 – our current financial year – of 47.3 million. And then we’ve just found out, of course, that FY 27 is going to be much larger, and that special levy is looking like 107 million at this stage, above the 20 million cap for our sector.
And certainly the actuaries are saying that when they do the next estimate, they expect those numbers to climb again. And that’s in part because that current number doesn’t include anything for Shield and First Guardian. So our members are really keen to understand how you’re going about making that decision, and whether that’s something we can expect to hear about soon.
Mulino:
Yeah, well, look, I can commit to not speaking about this for 75 minutes. But look, firstly, I just want to convey to everybody in this room that I’ve heard your concerns. I wasn’t at that session yesterday, but I understand your concerns. They’ve been conveyed to me directly by a number of advisors. They’ve been conveyed to me eloquently by Sarah, and we’re in ongoing discussions, and, you know, other parts of the sector. So I just want to, firstly, say I hear your concerns.
Secondly, yes, there’s a $47.3 million amount that I need to apply special levy to and distribute. There’s also then FY 27 which we’ve seen a preliminary estimate of, but which will likely grow, and then, of course, they’ll likely be Shield and First Guardian payments in that year, possibly and subsequent years, I guess. I think there’s probably a broad things to say. One is within any sub sector – so let’s just look at this firstly, within financial advice – I totally get that people who didn’t behave badly are frustrated and having to pay for actions of people who sometimes just didn’t live up to standards. But possibly, and we don’t know for sure, but possibly, may have intentionally behaved badly.
I get that frustration, but I would also just make the observation that, in a sense, no matter how you design a compensation scheme, particularly in cases where people intentionally behave badly, they’re not going to be around to make compensation. And so almost any compensation scheme that you think of is going to involve the parts of a sector who are behaving well, making payments for the actions of those who didn’t behave well. And I get the frustration, but that’s almost inherent in a scheme.
Now, another approach would be to have a scheme which is much more reliant on insurance, for example, but that would have consequences also. I mean, you could argue that a risk rated insurance arrangement would be somewhat fairer in that people who have behaved well for a long period of time would have lower premiums than others. But the difficulty with an insurance arrangement is that that can involve very significant costs. So I just wanted to flag that at the heart of any compensation arrangement is a tricky situation in which the bad actors are often not going to be around to make their contribution, and there’s no straightforward way through that.
The second dimension, moving aside from that to the broader challenge of allocating this across the financial services sector more generally, is that I think financial advisors do make the point fairly that Shield and First Guardian are all about advice. There were other points of failure which we need to investigate and which are being investigated. And that’s a fair point.
But part of the challenge just being upfront is that what we have are complicated schemes with Shield and First Guardian, where, when we think about allocating CSLR levies, we end up looking more broadly across the sector. And I can just tell you that just about every part of the financial services sector feels frustrated that they’re involved at all, and so it’s a situation where there’s no straightforward answers, and where nobody much wants to be involved in contributing to that levy.
That’s why I’ve publicly stated that an option is to try to spread it quite widely so as to deal with these issues of not putting too much burden on any particular part of financial services. But I do get that when that kind of option is looked at, many will come back and say, why are we involved?
We do have a CSLR. That was an arrangement which was supported in a bipartisan way. I think the legislation was originally put forward by Josh Frydenberg, and we supported that it was something which came out of the Royal Commission. But this takes me all the way back to I think the only way, or the best way, forward, is to significantly reduce the occurrence of these kinds of events. I think that we do need to think through compensation after some of these events happen.
But moving forward, I think we really do need to reduce these events occurring, because after they’ve occurred, there’s just no easy or straightforward answers,
Abood:
Yeah, and that’s clear. They’re clearly very highly complex matters. I think for us, there’s more immediate issue, though, that many of our members are working in small businesses. They do. They don’t have a lot of capacity to pay. So I don’t know. I don’t know if you’re in position to make any announcements today, but do you have a sense of the time frame so that those special levies, there’s a process I know that you’re going through. It’s extremely complex. But are you working towards a particular timeframe or day when you’d be able to let us know what your plans are?
Mulino:
I don’t have a particular day. And clearly the first levy that would be discussed would be the FY 26 that’s an amount which is now final. The FY 27 is a preliminary number, so we’re going to need to take more time with that one as the final amount becomes clearer, the FY 26 we’re not looking at a long period of time before I can work through that a matter of weeks. But I can’t give a particular date at this time. But, yeah, but you know, I think that I will be when I work through that particular levy, also be trying to think through some of the more systemic issues. Because I do, as people in this room know, well, look, there are a bunch of mum and dads who have been affected by not just Shield and First Guardian, but all of the things which have led to the 47.3 and the FY 27 like they’re pre Shield and First Guardian.
I do think we will need to figure out how to provide some support, a backstop to those mum and dads. But I also just want to flag with everybody. I’m not just going to be looking at the FY 26 in isolation. I’ll be looking at more systemic reforms, and I’ll be looking to work with Pat on those, you know, and the broader parliament as much as possible. I mean, those more systemic reforms, for me, the prevention going forward is really the key thing. I know that there’s a pain point with FY 26 and the years forward.
But for me, the really important thing is that we need to deal with the systemic issues going forward and use this as an opportunity to come together on that. And I feel like there’s going to be a lot of common ground in this, in the industry. There’s been a lot of constructive work in the industry already, and not just in this room, but other parts of financial services. But also I feel like there’ll be, I think, a lot of scope for common ground in the parliament to come up with some reforms going forward.
Abood:
Minister, our clock’s run down. I try and sneak in just one last quick question. Obviously, the delivery better financial outcomes reforms are pretty critical for our sector. What the shape of those reforms look like, what the new class of provider might look like? Certainly, many of our members are really keen to see some red tape reductions, some changes to the statements of advice to make them easier to produce just Just a really quick finish. Can you give us any sense of where those reforms are up to, and what you’re thinking in terms of next, next phase and timing on those?
Mulino:
Yes, look, this has been a real priority. One of the constraints on the DBFO is that it is a complex set of reforms, and we really want to get this right, and we are coming up against drafting constraints in a range of areas. And I know that’s not a very satisfying answer, but yeah, the DBFO has just taken a bit longer than ideal, because we’re trying to step through that with as much urgency as we can. But we do need to take care with these reforms.
But look, I’m very conscious that we need to work closely with you on making sure that that new class of advice is appropriately defined and that there are the right guardrails around it, but I’m also very conscious of the need for us to be able to deal with red tape issues. So look, I think that the other issues we talked about are more likely to come through in the public realm before this, but I’m really trying to push this through as quickly as I can.