The collapse of the Shield and First Guardian schemes has exposed, with painful clarity, just how vulnerable Australians can be when the guardrails around their retirement savings fail.
12,000 Australians losing $1.2 billion of their life savings is a crisis that must initiate change.
What’s clear is the regulatory settings are not fit for purpose. The gaps are wide, and Australians are paying the price.
In our pre-budget submission to the Treasurer, we’ve called on the government to use this year’s budget to fast track a package of stronger consumer protections.
The package of protections should include a crackdown on aggressive selling of super products through social media ads and cold calling, and stronger safeguards to protect both consumers and advice licencees from potential conduct risks arising from conflicted remuneration.
The latter can be achieved by a comprehensive ASIC review to inform a refresh of its conflicted remuneration guidance and ensure there are no loopholes in this key consumer safety protection.
Such a review should include:
- Ensuring the definition of “conflicted remuneration” covers indirect benefits, not just direct benefits, including any profits or equity interests in related product issuers and platforms.
- Undertaking a comprehensive review of payment arrangements from platforms and product issuers, given the significant evolution of industry models since the last review.
- Improving Financial Services Guide (FSG) disclosures by making any payment relationships clearer. This could include annual disclosure of such relationships, with dollar amounts, on a public register or in mandatory annual reporting.
Tackling aggressive selling tactics through social media ads and cold calls can be achieved by expanding anti-hawking laws to cover any contact aimed at generating or transferring leads for personal financial advice or super.
A strong package of consumer safety measures should come with a reversal of the Government’s decision to force low-income workers in the well-regulated mainstream super system to cover a cost blowout in the Compensation Scheme of Last Resort (CSLR).
The CSLR is an important safety net, but if everyday Australians in highly regulated parts of the retirement savings system foot the bill for unrelated misconduct elsewhere, it further emboldens risky behaviour and undermines the purpose of the scheme as a genuine last resort. The Government should be plugging gaps to risks, not creating them.
Prevention is always better than clean up. If the opportunity to put in place stronger guardrails as a result of this crisis is wasted, then the door will be left ajar to more pain in the future and the next crisis could leave more to clean up than the last.
