Better financial advice is a Christmas gift for all – especially retirees

The rules on financial advice are changing again. And the new proposal is designed to help everyday Australians - finally - access better quality, more consistent financial advice.

Each weekend I publish a column in The Sunday Age, The Herald-Sun, Brisbane Times and WA Today money section. This article was first published here. It’s my last newspaper column for 2023. Enjoy!

The government announced a Christmas gift for all Australians with their intention to make financial advice more accessible. Minister for Financial Services, Stephen Jones introduced a set of changes on Thursday, and while it’s not yet law, it smells positive for everyday Aussies, especially those preparing for retirement.

There’s lots of talk about what it means for the industry, but little about what it really means for everyday Australians – those who need advice, many of whom can’t afford to pay off their credit cards next month, let alone fork out $4000 - the average price paid for independent financial advice today.

But first let’s start with the back-story. The banking royal commission in 2019 fundamentally changed the way financial advisers provide their services. It used to be all about guiding people to invest into financial products, with financial advisers incentivised on trailing or lump sum commissions on products sold.

But all this changed when the Royal Commission put an end to commissions being paid to financial advisers. Consequently, advisers shifted to a fee-for-service model, and much work was done to turn advice into a profession. Many advisers decided it was too hard to meet these standards, leaving the sector with only around 16,000 to serve over 5 million Australians approaching retirement. You don’t need a team of government advisers to know that’s going to be a problem.

The package announced proposes a new two-tiered advice model to lure advisers back into the industry. The changes introduce a lower class of adviser, a “qualified adviser”, trained to a diploma level and prohibited from charging fees or receiving commissions.

These advisers will be employed by super funds, banks and financial institutions who will take professional responsibility for their advice. Simultaneously, compliance obligations for professional advisers will be simplified, maintaining a focus on serving the best interests of customers.

There’s no doubt that the proposal will frustrate professional advisers, who have worked hard to reshape their industry over the last five years.

”We expect that the streamlining of the advice documentation along with appropriate safeguards will lead to improved access to advice, so more Australians can face the future with confidence,” said Jen Harding, the general manager of advice development at HESTA.

Another big change is allowing superannuation funds to provide helpful nudges to members to drive greater engagement with superannuation at key life stages. Many will use AI and data to nudge people about real time needs, something which has not been allowed before.

While a positive step, it may take about a year for the proposal to become legislation and a couple more to attract people back into the industry and train them to appropriate levels.

So what should you do if you are approaching retirement and want financial advice in the next year or so? In my view, Australians approaching retirement should reconsider the notion that everyone needs independent financial advice and view advice as a layered process, seeking different types of advice for various purposes based on their financial sophistication.

Many are unaware they can already access free advice from their super funds and great tools online – and this will only improve from here. Let’s explore the available advice options and consider how they might change.

Self-help

Everyone should start with self-help, the simplest of which is available on the government’s Moneysmart website, offering basic financial literacy information and helpful calculators, and in books and courses. Super funds also provide retirement planning calculators and budgeting tools on their member websites.

And for those willing to pay, digital advice platforms like Otivo help you gather all your financial information and offer comprehensive financial plans without a need for human interaction. This area won’t change. Digital advice and self-help will grow as the tools are improved.

General advice

General advice is factual information, not tailored to personal situations. It is usually provided by superannuation call centres and workplace superannuation advisers. You might prefer to call this useful help that will explain how things work. The people who provide it typically hold a simple qualification in financial product advice.

It is a great way for people to start learning and exploring the contributions they can make, their investment options, the age pension and how their super plays a role in income layering. This area is also unlikely to change much, but may morph into the new layer called ‘qualified advice’ over time.

Intra-fund advice

Then, we jump to personal advice that takes in your actual financial situation. Intra fund advice, is a type of simple, non-ongoing personal financial advice that is offered by professionally qualified superannuation fund advisers, but their scope is limited by ASIC to advising on their investment in superannuation within their fund.

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