The government passed the Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 through the Senate on Wednesday, following through on recommendations from the royal commission around advice.
Under the legislation, clients of financial advisers will receive an annual forward-looking summary of fees and corresponding services, in addition to existing disclosures.
Advisers will need to obtain written consent prior to deducting fees.
The legislation will also prohibit the deduction of ongoing advice fees from MySuper products, aiming to increase the transparency of fees to members.
The bill had copped criticisms from many corners of the advice industry, with multiple industry bodies lobbying crossbench senators for last-minute amendments. The changes are expected to cost the industry $28 million in terms of upfront annual compliance fees.
But CHOICE finance policy adviser Patrick Veyret called the new bill an “important step in improving consumer outcomes”.
“This reform adds much needed transparency to the deduction of advice fees. Customers will now be much better positioned to assess value for money,” Mr Veyret said.
“The banking royal commission showed that existing remuneration arrangements in financial advice, including ongoing service arrangement often resulted in consumers receiving poor quality advice. The fee-for-no-service scandal revealed that many in the advice industry, particularly large vertically integrated advice firms, treated ongoing service arrangements as money for nothing.”
CHOICE added that it is also looking forward to the government’s review of financial advice in 2022, which is considering quality of advice and potential conflicts in the industry.
ASFA (the Association of Superannuation Funds of Australia) has advocated allowing one-off advice fees to be deducted from MySuper accounts, with deputy chief executive and chief policy officer Glen McCrea commenting: “Sadly, not all superannuation fund members are able to pay for financial advice out-of-pocket.
“It’s pleasing to see that the Parliament recognises that an individual’s superannuation fund account type should not preclude them from accessing and paying for, worthwhile advice.”
On Thursday, the House of Representatives also passed the Treasury Laws Amendment (Reuniting More Superannuation) Act 2021, which requires accounts transferred from Eligible Rollover Funds (ERFs) to the ATO will be reunited with a member’s super account or directly with the individual where eligible or possible, within 28 days.
The government has said the legislation will facilitate the exit of all ERFs from the market by early 2022.
The bill’s goal is to remove large numbers of duplicate super accounts from the system, reducing duplicate fees and allowing consumers to end up with higher balances.
The measure, ASFA said, will allow funds to voluntarily transfer amounts to the ATO where the trustee believes it to be in the best interests of the member.
“The flexibility this allows trustees is extremely valuable especially where the trustee holds small residual account balances, arising, for example, from withdrawals made under the COVID-19 early release scheme or low balance fee cap refunds processed after an account has been closed,” Mr McCrea said.
“Improving the flexibility for super fund trustees to transfer balances to the ATO, including low balance accounts, will lead to administrative efficiencies, more super being reunited with members’ active accounts and reduce the number of multiple accounts.”
According to the government, its Protecting Your Superannuation reforms have resulted in the ATO proactively consolidating $3.7 billion held in unintended multiple accounts on behalf of almost 2 million people as at December 2020.
ERFs had been introduced as a temporary measure for the benefit of members who had lost their super accounts.
The reform is consistent with a recommendation from the Productivity Commission’s report into superannuation efficiency and competition.
