Super cold-calling banned after Aussies lose $1 billion

The government will enforce sweeping reforms around cold calling, predatory superannuation switching and managed investment schemes (MISs) in the wake of the Shield and First Guardian Master Fund collapses, which lost an estimated $1 billion in retirement savings and will subsequently bestow the three major regulators new powers.

Minister for financial services Daniel Mulino announced three core reforms, one of which will stem "harmful lead generation" that largely emanates via social media, online advertisements or cold calling.

Unlicensed real-time communication pertaining to superannuation will be banned, while tougher anti-hawking laws are set to improve consent requirements.

Licensees will also be required to take reasonable steps to ensure lead generation activities comply with relevant regulatory and legal requirements.

Mulino will also tighten the existing anti-hawking laws that have exempted financial advisers, flagging this will soon be limited to existing client relationships.

He said the government is looking to strengthen anti-hawking protections by limiting the existing exemption for financial advisers to existing client relationships, flagging further consultation is needed on what "targeted exemptions" look like. This is in the form of protection advocacy, educational and employment communications.

This is also to ensure "low-risk arrangements" and necessary contact with family members and third parties of existing clients are protected.

The change effectively closes a loophole the financial advice sector has enjoyed. Currently, the Corporations Act bans the unsolicited offer of a financial product to a consumer. Several exceptions apply, including offers made while providing personal advice to the consumer by a person who is required to act in the consumer's best interests.

Treasury previously stated this exemption has been used by lead generation and referral models, which rely on the cold calling approach to be "cleansed" by transitioning from the initial marketing or lead generation activity into providing personal advice.

This means unsolicited contact may be "cleansed" when a financial adviser engages with a consumer who was hawked by a third party, such as a lead generator.

This was the bedrock in which AusCompare, the lead generator the Shield Master Fund and First Guardian Master Fund that is now in liquidation, relied upon to funnel clients into the MISs.

Mulino also warned of tougher penalties for breaches of anti-hawking laws.

The government will further crackdown on data collection and broking activities in the financial sector that often represent consumers' first point of contact.

"These reforms are designed to disrupt some of the most damaging business models operating in the system today," Mulino told the National Press Club today.

"They target the point at which consumers are first exposed to harm and reduce the ability of bad actors to gain access to consumers in the first place. We will make the financial system safer by strengthening protections across the superannuation, advice and investment ecosystem."

New remits for ASIC, APRA and ATO

Regulators APRA and ASIC will be bestowed with new powers in a bid to curb another Shield and First Guardian disaster.

Mulino proposed a new framework empowering ASIC to direct superannuation trustees to commence remediation where an investment option fails and there is "reasonable suspicion" that a trustee has breached its obligations.

In cases where a trustee is found to have failed its duties, members would be entitled to compensation for their full capital losses.

Mulino described the proposal as a "significant structural reform" designed to provide members with a clearer pathway to compensation.

"We will also give APRA the power to set capital requirements to ensure superannuation trustees that offer higher-risk options have the financial capacity to meet those obligations," he said.

"These reforms will encourage stronger investment governance and reinforce APRA's ongoing work to address weaknesses in investment governance practices.

"We will also strengthen penalties under the Superannuation Industry Supervisory Act, sending a clear signal that members deserve security, transparency and accountability from those entrusted with their retirement savings."

Furthermore, MIS providers can expect tougher restrictions on how they operate and govern their products, starting with stronger audit and assurance requirements.

MISs will be forced to notify ASIC when they freeze, suspend or otherwise restrict investors' ability to redeem their investments.

Mulino said the measures, combined with additional funding provided to ASIC in the recent Budget will improve transparency and accountability while giving regulators greater visibility over emerging risks.

"Importantly, they will help regulators identify concerning flows of consumers and capital into high-risk products at a much earlier stage and intervene before problems become widespread consumer harm," he said.

As part of the reform package, the Australian Taxation Office (ATO) will receive a new power to prevent rollovers into SMSFs where there is a "well-founded suspicion of consumer harm."

Data-sharing arrangements between ASIC and the ATO will also be expanded to help regulators detect concerning rollover activity earlier.

The government will further require SMSFs to maintain uniquely identifiable bank accounts, introduce minimum trustee knowledge requirements and increase transparency around the role of financial advisers.

Under the changes, newly established SMSFs will be required to disclose any adviser involved in setting up the fund, while annual financial statements will include a dedicated line item detailing advice fees deducted during the year.

Mulino said the measures were intended to target harmful conduct rather than increase compliance burdens for trustees managing their retirement savings responsibly.

"For the vast majority of trustees, they reflect practices already in place, allowing us to better identify at-risk consumers and interrupt harmful practices," he said.

Additionally, the government will align the collection of the first SMSF supervisory levy with fund establishment and increase the levy for the first time since 2013 to ensure the ATO is adequately resourced to engage with new trustees and address emerging risks.

This article first appeared on Financial Standard

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