General and personal advice a concern in Retirement Income Covenant

Concerns for trustees relating to the difficulty in navigating the divide between general and personal financial product advice have been raised by KPMG.

In its submission on the Retirement Income Covenant, KPMG said trustees should be exempt from some of the personal financial product advice requirements.

KPMG said trustees should be exempt from the personal financial product advice requirements in using member data to determine member cohorts, and tailoring retirement solutions to better meet the needs of those cohorts in accordance with the retirement income covenant.

“Trustee guidance and assistance provided in accordance with the Retirement Income Covenant should be exempt from the personal financial product advice and anti-hawking requirements, to allow trustees to explain their retirement solutions to their members to help them make better retirement decisions,” it said.

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“This should be distinguished from, and regulated separately to, the provision of holistic personal financial product advice.

“Trustee guidance and assistance provided in accordance with the Retirement Income Covenant should be regulated under the prohibition against misleading and deceptive conduct rather than the personal financial product advice and anti-hawking requirements.”

KPMG said it agreed with an approach that recognised trustees were well placed to help their members develop effective retirement income strategies, given the complexities involved in making retirement decisions.

It also welcomed a principles-based approach that provided trustees with the flexibility to offer one or more retirement income solutions that enable members to combine them to better meet their retirement needs and preferences.

It encouraged the Quality of Advice Review by Treasury in 2022 to focus on law reforms that would better facilitate the development of service models that provided members with access to personalised guidance and assistance, as well as holistic personal financial product advice that was affordable and scalable.

However, additional guidance should be provided to trustees to assist them in understanding how the retirement income covenant would intersect and interact with other trustee obligations, and how the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) would expect trustees to comply with those obligations.

The requirements of the covenant should also be tested against the design and distribution obligations (DDO) regime to identify any areas of overlap and duplication.

“Where obligations overlap, there should be a clear articulation of the rationale for the two obligations in terms of the desired policy objectives,” it said.