In its submission to the consultation proposals around Shield and First Guardian, the organisation referenced measures around superannuation switching, a key problem with Shield and First Guardian.
This involved lead generators cold calling individuals and encouraging them to switch their existing super fund into the Shield and First Guardian products.
Considering this, Treasury had put forward a range of proposals to reduce the prevalence of lead generators and the impact on financial advisers and super funds.
The paper Enhancing member protections in the superannuation system suggested introducing a waiting period for inter-fund super switches, either applied to all switches or certain funds.
If confirmation of a rollover request is not received by the transferring fund after the mandated waiting period, the request will lapse after a further three business days.
In addition, an obligation would be placed on the member’s current super fund to provide a notification to the member upon receiving the initial request to switch.
In response, JAWG said: “The JAWG opposes the proposal to introduce mandatory waiting periods when changing superannuation funds.
“These measures would introduce significant friction, cost and operational complexity into the advice process while doing little to address the underlying causes of the harms identified in recent cases. Indeed, the lead AFCA determinations with respect to Shield and First Guardian show customers were often courted by lead generators over months, and therefore waiting periods would not necessarily have stopped the harm.
“We also envisage unscrupulous operators will simply adjust their sales scripts and tactics to account for a mandatory waiting period.”
A second proposal related to the prohibition of advice fee deductions for switching-related advice.
Under current arrangements, members can deduct the cost of financial advice about their super from their super interest. These advice fee deductions can support access to personal financial advice by allowing fees to be paid directly from the member’s super interest.
Instead, Treasury proposed trustees not being permitted to allow advice-fee deductions where the associated Statement of Advice has recommended a switch and financial advisers being required to disclose to a member that any advice relating to a switch must be paid out-of-pocket.
JAWG said this option could leave poorer members stuck in underperforming funds as they were unable to afford the advice fee.
“Assessing whether a member’s existing superannuation arrangement remains appropriate, having regard to their objectives, financial circumstances and needs is a fundamental component of comprehensive personal financial advice and good consumer outcomes.
“Measures that effectively discourage advisers from providing switching-related advice risk undermining access to financial advice and limiting consumers’ ability to receive professional guidance on one of their most significant financial assets.”
“The JAWG is also concerned about potential negative impacts to member choice and competition under this proposal, both of which are important principles underpinning good consumer outcomes within our system. The proposal would have the effect of reducing access to advice, especially for members who have the least ability to pay for it from non-superannuation savings. There is therefore a risk that members become ‘stuck’ in underperforming funds with poor service or they act on unregulated ‘advice’ to switch to a different fund.”
The JAWG includes industry associations such as the Financial Services Council (FSC), Financial Advice Association Australia (FAAA) and Stockbrokers and Investment Advisers Association (SIAA).
