Australians could soon see an end to advice fees being deducted from their superannuation when they switch funds. The Treasury is pushing through reforms to clamp down on dodgy switching practices and make super platforms more responsible for the products they offer.

Switching Super Just Got Tougher

Switching super funds might not be as simple as it used to be. The Treasury has proposed a mandatory waiting period for all inter-fund superannuation switches. Members will have to confirm their switch request within this period, or the request will expire after three business days. The exact length of the waiting period is still to be set, but the idea is to prevent rushed or poorly considered fund switches.

That’s partly a response to recent high-profile collapses, like those of Shield and First Guardian, where large-scale switching advice was given, funded by super balances themselves. The government sees this as a loophole that allows some advisers to charge fees on switching advice in a way that’s risky for members.

When you switch your super fund, sometimes the advice fee is taken straight from your super balance instead of being paid upfront. This risks your retirement savings, especially if the advice pushes you into bad investments or unnecessary switching. The new rules aim to stop this practice.

Cracking Down on Advice Fees

One of the key reforms is to limit or even ban advice fee deductions tied to switching superannuation funds. Treasury wants to make sure that any advice fees deducted from super are properly reviewed by the receiving fund. They’re also looking to codify this review process, which means putting it into clear legal rules rather than leaving it vague.

The reason is simple: when advice fees come from super balances, some bad actors might take advantage of that money. It’s not just about the fees themselves but about the risks That creates for members, who might end up paying for advice that doesn’t deliver real value or worse, leads to losses.

What’s more, the government is worried about the scale of switching advice being given purely to generate fees rather than to benefit members. The proposed reforms aim to curb this by making it harder for advisers to fund their fees through members’ super when the advice is simply pushing them to switch for the wrong reasons.

Platforms Face New Rules and Accountability

Platforms that offer investment options for superannuation funds won’t escape scrutiny. Treasury is considering rules that would impose mandatory holding limits on certain investments offered on these platforms. This means trustees would have to limit how much of each investment type their members can hold, reducing exposure to risky or low-quality products.

Trustees will also face tougher due diligence when adding new products to their platform menus. The initial screening process will focus on ensuring that all products meet high standards and are actively reviewed and approved by trustees. This legal obligation sets a clearer minimum bar for what members can expect when they use a platform.

And here’s the kicker — the government wants platform trustees to compensate members for certain losses. Not just any losses, but those arising from fraud or theft that lead to an investment product collapsing. Ordinary investment losses, like those caused by market ups and downs, won’t be covered. This distinction is important because it means trustees won’t be on the hook for bad market performance but will need to protect members against outright scams or theft.

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Lead Generation Under the Microscope

Lead generation in financial advice has also come under fire. Treasury is proposing reforms to make lead generators more accountable for their conduct. This includes cracking down on unsolicited selling and fixing conflicts in payment structures that might encourage bad advice.

Advertising that misleads or harms consumers is another target. The government wants to disrupt harmful marketing practices that lure people into switching or buying advice they don’t need. These reforms would bring clearer rules and stronger enforcement powers to police lead generators.

Lead generators connect clients to advisers and often take fees or commissions for it. The concern is that some use aggressive or misleading tactics to drum up business, which can push consumers into poor decisions. The new rules aim to cut off these harmful practices and protect members.

Why These Changes Matter for Australians

Superannuation is the biggest savings pot most Australians will ever have. It funds retirement, a stage of life where financial security is vital. So, protecting members from dodgy advice and risky investments is a no-brainer.

But switching funds is common. Many switch to chase better returns, lower fees, or services that suit their needs. The problem is when switching is driven by advisers chasing fees rather than members’ best interests.

These reforms could help slow down unnecessary switching. They might also clean up the advice industry by removing incentives for advisers to push switches just to pocket fees. That’s good news for members who want to make thoughtful decisions without being rushed or misled.

Platforms will also have to lift their game. Holding limits and tougher product checks could weed out dodgy investments lurking in some super menus. Plus, the compensation rules give members a safety net against fraud or theft — something that’s been missing.

For advisers, these proposals signal a shift towards greater accountability. They’ll need to be clearer about fees and ensure advice genuinely benefits members. Funding advice fees from members’ super balances without proper checks might soon end.

What’s Next?

These reforms are still in the consultation phase. Treasury is gathering feedback from industry groups, consumer advocates, and other stakeholders. The final rules might change based on what they hear.

That said, but the government’s message is clear: it wants a safer, fairer super system. One where members aren’t exploited through excessive fees or poor advice and where platforms offer trustworthy products.

For everyday Australians, That could mean more confidence when switching funds, knowing they won’t be hit with hidden advice fees. It also means better protection if something goes wrong with investments held on platforms.

Still, the devil’s in the detail. How long the waiting period will be, what exactly counts as eligible losses for compensation, and how strict the holding limits become will all shape the impact of these reforms.

One thing’s for sure — superannuation is getting a closer look, and the government isn’t shy about making changes to protect members’ retirement savings.

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The Treasury’s drive to curb dodgy switching advice, ban advice fee deductions from super, and hold platforms accountable marks a big shift for Australia’s retirement savings. Members could soon enjoy safer switching processes and stronger protections against fraud. The challenge now is ensuring the reforms strike the right balance between protecting members and keeping advice accessible.

This article was created with AI assistance.