Introduction
I would like to acknowledge the Gadigal people, the traditional custodians of this land, and pay my respects to the Elders past, present, and emerging.
I reiterate the Albanese Government’s commitment to the Uluru Statement from the Heart and a Voice to Parliament.
I acknowledge any First Nations Australians with us today.
I want to thank ASFA, Gary and the team for the opportunity to present to you this morning.
I also want to pay tribute to the leadership of Martin Fahy over seven years here at ASFA. He’s led this organisation in a period of significant change for the superannuation industry. I wish him all the best for the future.
Michelle Levy has made a thoughtful contribution to the role that financial advice could play in the economy, and I thank her for that.
I’m mindful of the role that others have played in shaping this discussion.
Former Ministers for Financial Services – Chris Bowen and Bill Shorten – were instrumental in passing the FOFA reforms.
Ken Hayne and his comprehensive work examining the financial services industry through the Royal Commission.
Mike Callaghan and his review of the retirement income system.
All of these people – and more – need to be thanked for helping provide guideposts for a way through the complex and contested space that is financial advice policy.
I know there are many financial institutions, advisers and advocates who have a keen interest in my announcement today.
And they have an important role to play.
But I want to be very clear at the outset who I am focussed on.
Workers. Families. Australians.
The workers who want to make their hard‑earned wages go further.
The families who want to give their kids a safe today, and a better tomorrow.
The Australians who want a Government that ensures no one is left behind, and no one is held back.
This is who I am focussed on.
It is the focus of the Labor Government.
It is the focus that created the Australian superannuation system, the fourth‑largest pension pool in the world.
It is the focus that campaigned for a Royal Commission into the financial services industry, to clean up unconscionable behaviour.
It is the focus that looks at the state of financial advice and says, we can do better for Australians.
When I arrived in office 12 months ago, there was a body of work underway to review financial advice.
A review set in train by the previous Government.
If I wanted to, I could have made it dead on arrival.
When the review was handed to me, I could have ended the process.
I could have taken some of the easy wins and ruled out anything else.
After a decade of mismanagement by the former Government, there were no shortages of areas that needed our attention.
Dealing with inflationary pressures while providing cost‑of‑living relief.
Getting wages moving again.
And paying off a trillion dollars of debt.
And so, I could have put this in the too‑hard basket.
But I didn’t.
Because I see a need.
I’ve been reminded many times that I have characterised the current state of advice as a ‘hot mess’.
And the review lays that bare.
While financial advice is far from the panacea to all ills, quality advice can make a meaningful improvement to the lives of Australians.
And so, there is an opportunity.
The state of financial advice
Millions of Australians are retiring with more wealth than ever before.
The success of superannuation cannot be understated. For its reach to millions of Australians, it is perhaps the most significant public policy of the last 30 years.
It has been a life‑changer for workers and a gamechanger for the nation.
Perversely, at the very time that Australians have more savings, advice on how to make those savings work for them in retirement has never been harder to get.
Over the past decade or so, the financial advice sector has undergone significant change.
In response to, sadly, bad practice in the sector, financial advice has become heavily regulated over this time period.
Each scandal, each catastrophe led to more reforms to protect Australians from poor investments and bad financial advice.
These reforms often targeted a specific part of the problem.
Conflicts of interest.
Poorly qualified advisers.
And a culture of salesmanship instead of a fiduciary relationship.
We aren’t going back to those bad days.
As a consequence of these reforms, we have also seen an exodus of advisers from the industry.
Over 10,000 financial advisers have left the industry since 2019. And it should be said that in many instances, this has been a good thing for consumers.
Many of the people who left the industry were simply not suited to the requirements of a profession which put the interests of consumers first.
However, it also means that there are only 16,000 financial advisers today.
Between overlapping regulations and a shrinking adviser pool, advice and information are now too expensive or inaccessible for everyday Australians.
The Quality of Advice review found that the median ongoing advice fee has increased by 41 per cent between 2018 and 2021.
So, while the reforms have been effective in protecting Australians from bad advice, it has also shielded them from helpful advice.
It would be bad enough if Australians simply got no advice.
However, it can lead to even more harm when they try seeking to fill this advice gap with information from the unregulated world.
And I don’t just mean Uncle Bob at the BBQ.
But ‘finfluencers’. Unlicensed online advice. And scammers.
A lack of advice can quickly become the means of significant consumer harm.
Getting more professional advisors, qualified and into the practice is important. It needs to happen.
However, this alone will not fix the problem.
This week, I will be introducing legislation to Parliament to follow through on the Government’s election commitment to create a pathway for experienced advisers with a clean record to continue practising without the need to undertake further education.
This will soften the landing as the sector transitions towards a fully professional industry, without compromising standards.
But even if we doubled the number of financial advisers – which is not realistic – it still won’t be enough.
There are five million Australians at or approaching retirement.
The math does not check out.
And yet, most Australians don’t have complex financial affairs that requires a comprehensive advice plan from an adviser.
They just want to know how to make their super work for them.
They want to know how to combine it with the Age Pension and other benefits.
And with simple advice and information, they could have a material improvement to their quality of life.
This is who I am focussed on.
The Government’s response
Which brings me to the Quality of Advice Review.
It covers a broad sector of the economy.
And because of that breadth, my approach is to sort between the urgent and the important.
Not everything is a burning deck.
Which is not to say that we ignore the important.
But we don’t want to hold up the urgent, while trying to agree on everything else.
There are also some problems that have a ready‑made answer.
Others are tougher nuts to crack.
And so, I think we can move quickly on the former, while working together to solve the latter.
With this in mind, I am pleased to announce that the Government will adopt the bulk of the review’s recommendations immediately, with legislation to come in the second half of 2023 and early 2024.
Of the 22 recommendations, the Government will adopt 14 recommendations in full or in principle today.
We are also not ruling out any recommendations and will finalise our position on the remaining recommendations before the end of the year.
We will progress the implementation of these recommendations through three streams of work.
Stream One – Removing red tape that confuses consumers
The first stream of work will streamline the process of giving advice through current channels.
The review identified a number of weaknesses in the current regulatory framework.
Some rules that were intended to protect consumers have instead materialised as unnecessary and unused documentation at best.
Sadly though, some of these rules have led to consumer harm as advisers seek to protect themselves from their clients.
With each superfluous rule, the cost of providing advice has increased.
And consumer outcomes have not improved.
We can do better.
Among other things, we will replace the unwieldy statements of advice with something that is fit‑for‑purpose.
We will streamline cumbersome consent requirements to remove uncertainty and unnecessary paperwork.
We will remove the legalistic safe harbour steps so that advisers focus on the outcomes for consumers.
We will improve consumer protection by clarifying the rules on conflicted remuneration and improving transparency where advisers receive commissions on products.
Let’s get on with it.
Stream Two – Expanding access to retirement income advice
The second stream focuses on the most significant burning deck in the financial advice space.
Retirement incomes.
The average Australian is now retiring with around $200,000 in superannuation.
Yet the Retirement Income Review found that only 26 per cent of individuals approaching retirement seek financial advice.
Unsurprisingly, the Retirement Income Review also projected that by 2060 one in every three dollars paid out of the superannuation system will be a bequest.
As we have a conversation about the Objective of Superannuation in 2023, we have made it clear that the purpose is not to leave bequests.
We celebrate the growing size of the superannuation sector.
But an effective retirement system should support Australians to draw down on their superannuation in ways that improve their quality of life.
We’re not there.
Superannuation funds must play an expanded and more effective role that serves the needs of their members.
In fact, government has already told them they need to do more.
The Retirement Income Covenant came into effect just under 12 months ago.
It requires trustees to develop a retirement income strategy for members to improve outcomes for retirees.
We want funds to know their members better and help them navigate their needs.
Should I contribute more to my superannuation?
What does the retirement phase look like?
What tax obligations do I need to think about?
What is my eligibility for the Age Pension?
And yet the rules constrain the very conversations that need to be happening.
This advice gap is leading to worse outcomes for members.
Superannuation funds have told me that they have many retirees who have not switched from the accumulation phase to a tax‑free pension account.
This might be good for the Treasury coffers, but it’s not good for members.
I’m also told that there are thousands who miss out on the Age Pension and other benefits that they are entitled to, simply because they didn’t know who to ask.
Or because they assumed their super fund was already doing this for them.
We can do so much better.
As such, we will adopt the review’s recommendation for superannuation funds to expand their provision of advice.
We will also provide legal certainty for funds on how to collectively charge for advice.
Super funds are well‑suited to safely meeting the needs of their members.
They are already governed by strong obligations to act in the best financial interests of members and act for the sole purpose of providing retirement benefits to members.
And further, as a government we have taken steps to strengthen super disclosures such as requiring super funds to report to ASIC in the same way as publicly listed corporations.
The remaining recommendations form the model that we will use as a starting point.
But there are some outstanding questions.
What is the scope of advice that can be provided by a fund?
What are the education standards needed for an employee or representative?
And how do we hold them to an appropriate duty?
So, we are open to tailoring that model as necessary based on feedback from industry and Treasury’s advice to make sure it leads to meaningful outcomes for members.
In the coming weeks, Treasury will work with industry to finalise the details for how these recommendations can be effectively implemented.
Let’s get on with it.
Stream Three – Exploring new channels for advice
The final stream will examine the role for other institutions – banks and insurers – in providing more information and advice.
In terms of priority, I believe it is more urgent that we fix the problems for financial advisers.
And help the 5 million Australians, at or approaching retirement, get access to more retirement income advice.
I’m just not compelled that the same urgency exists in these other spaces.
There is also a difference between the obligations that cover these institutions and superannuation funds.
And so, I’m not compelled that the model that has been proposed in the review is fit‑for‑purpose for these other sectors as is, even where there is a need.
The review has given us some principles to guide the conversation.
But right now, more is needed to get it to the point that it can make a meaningful difference.
Those who understand this space know that there is more work to do to, even if you support the direction.
But I’m not ruling it out.
As Treasury is working on implementing the recommendation for superannuation funds to provide more advice, it will explore with industry what would be required to tailor the model for other institutions.
And whether this will make a positive difference for consumers.
Because if it helps consumers, we want to get it done.
Conclusion
Because we are not doing this for institutions.
We are not doing this for advisers.
We are not doing this for superannuation funds.
This is a conversation that was started by my predecessors who implemented the Future of Financial Advice Reforms.
And continued by Hayne in his landmark Royal Commission.
I proudly stand in that tradition.
We won’t forget where we’ve come from.
Or the lessons that we have learned.
But we also won’t be constrained by history.
Because we can do better.
We can do better for the workers.
For families.
For Australians.
That’s who I am focussed on.