Australia's financial services sector closed the financial year with a paradox of strong investment returns and intensifying regulatory pressure, as ASIC's enforcement blitz collided with mounting industry costs and a $2.2 billion life insurance crisis. While superannuation funds celebrated double-digit gains, the sector grappled with investigations into trustee conduct, rising compliance levies, and an adviser exodus that saw numbers drop below 15,300 for the first time in years.
Financial Advice Highlights
The advice profession faced its most challenging week yet as ASIC permanently banned multiple advisers and cancelled licenses for non-compliance. In contrast, the June adviser exam pass rate plummeted to just 57%. The true cost of the Compensation Scheme of Last Resort became clearer with a revised estimate. However, the FAAA warned the $3 million reduction masks a "substantial deterioration" in long-term funding. Despite the exodus of 358 advisers in June alone, consolidation continues with Prime Private and Omnia Financial merging to create a $2.5 billion national entity.
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Investment Landscape
Markets defied expectations as the RBA held rates at 3.85%, surprising economists who anticipated a cut amid economic uncertainty. The investment sector is undergoing a fundamental shift with investors abandoning traditional 60/40 portfolios for private markets and alternatives, exemplified by L1 Capital and Platinum Asset Management sealing their merger deal. ASIC escalated its oversight by investigating superannuation trustees' roles in the Shield Master Fund and First Guardian failures, while also targeting digital disclosure reforms to modernise the sector.
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Superannuation Developments
Super funds delivered stellar returns with Aware Super leading at 12.7% and most major funds posting double-digit gains, though executives warn of challenging times ahead. ASIC's investigation into trustees' oversight of failed investment schemes marks a significant escalation in governance accountability, while the regulator also warned consumers about pushy super switching tactics. Technology transformation accelerated as funds prepare for payday super implementation, with AustralianSuper appointing MUFG and Wrkr for the transition.
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Life Insurance Trends
The sector faces an unprecedented $2.2 billion crisis driven by surging mental health and disability claims, particularly from millennials, forcing a fundamental rethink of product design and pricing. ASIC is appealing a Federal Court decision on HCF Life's unfair contract terms, signalling a determination to strengthen consumer protections. Industry calls for Life Insurance Framework commission reform intensified as advisers argue current remuneration models are unsustainable, while ASFA's new claims handling standards aim to improve efficiency and compassion.
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Regulatory Focus
ASIC unleashed an enforcement storm with multiple adviser bans, license cancellations, and travel restraint orders in the First Guardian investigation, while releasing industry funding levies showing financial advisers face a $46.2 million bill. The RBA's decision to hold rates steady at 3.85% added to sector uncertainty, as did rising costs, with the super and investment sector levy increasing by over $5 million. Consultations opened on PDS simplification and digital disclosure reforms, offering potential efficiency gains amid the compliance burden.
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Looking Ahead
The outcome of ASIC's investigation into superannuation trustees' role in product failures will set new governance standards across the industry, while the sustainability of the CSLR remains a critical political test requiring urgent government review. Financial services firms must prepare for continued cost pressures from rising levies and potential claims, making technology adoption and strategic consolidation essential for survival in an increasingly bifurcated market.
