A former ASIC executive and royal commission adviser has said the current financial services regulatory framework “can’t be made fit for purpose” for the tailored services that super funds will be expected to provide members as part of the government’s forthcoming retirement income covenant.
Speaking at an industry panel on Thursday, UNSW Professor of commercial law Pamela Hanrahan said it could be appropriate to “call time” on regulation of super fund advice through chapter 7 of the Corporations Act, given trustees were now wary of collecting too much detailed personal information from their members lest it be perceived as personal advice.
“I’m in favour of a new framework that enables the provision of [member] choice support to be completely carved out of financial product advice, so long as it’s provided by someone who is suitable, an APRA related entity or someone who is a licensed adviser,” Dr Hanrahan said.
“We’re trying to work out how you can efficiently deliver the choice support to a majority of people, and I think it’s time for us to have a strategy that says we’ve tried for 20 years to provide this in the framework of Chapter 7, so maybe we need to have a process where it doesn’t require the level of regulation we’ve had.”
The comments came on the back of recent remarks from the government that it would push ahead with a retirement income covenant by 1 July 2022.
Mandating an approach to retirement products across the super industry was previously floated by former financial services minister Kelly O'Dwyer, but the approach of current minister Jane Hume appears to be a more flexible principles-based system, with the expectation that funds will “tailor their retirement income strategy to their specific membership base”, Ms Hume has said.
However Dr Hanrahan said trustees were limited in the degree to which they could tailor approaches for individual members by the legal grey area between general and personal advice that had been established by ASIC’s recent case against Westpac, where its fund representatives were found to have provided personal advice over the phone to members.
“I think everyone would have paid close attention to the decision in the Westpac case where the representatives were collecting questions about the personal circumstance of the customers and have ended up in significant difficulty,” she said.
“That’s why after 25 years working in regulation, I’ve come to the conclusion that you can’t do what funds need to do, and what the minister wants, within the existing Chapter 7 framework.
“My advice to trustee boards would be to say if you genuinely want to achieve this and you need more information about your membership overall and individual members, why don’t you start with your members who are aged over 50 and build a fact finding collection system and get it agreed that you can collect that information from members without tripping into the Westpac problem, which any rational person would choose not to provide for all that we’ve seen about the regulatory risk attached to that.”
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