Market Overview: Regulatory Changes Reshape Super Landscape

The Australian superannuation sector faces significant transformation as the government rolls out the second tranche of Delivering Better Financial Outcomes (DBFO) reforms, coinciding with increasing fund consolidation and mortgage debt pressure on retirees. With Minister Jones signalling more reform ahead and platform providers accelerating technological innovation, the industry is navigating a complex regulatory environment while striving to address evolving client needs. This week's developments reflect a sector balancing compliance demands with innovation as funds prepare for upcoming budget implications.

Product Innovation & Market Movements

The competitive platform market continues to evolve, with Hub24 and Netwealth dominating competitive flows and solidifying their position as market leaders. Meanwhile, AMP has introduced a market-first generative AI capability embedded within AMP North, offering an AI filenote assistant designed to enhance adviser productivity and streamline administrative tasks. This innovation signals a growing trend of AI integration in wealth management platforms.

In the property investment space, Class has expanded its property valuation capabilities within its platform, providing SMSF trustees with enhanced tools for portfolio management. This development comes as experts suggest it's time to rethink traditional SMSF cash and shares allocations in response to shifting market conditions.

Fund consolidation continues with the official merger of Mine Super and TWUSUPER, while Mercer predicts accelerated super fund consolidation in the coming years, potentially reducing the number of funds to just 12 by 2028, a significant decline from the current landscape. Despite this trend, State Super, though in decline, remains financially stable, demonstrating resilience amidst industry transformation.

Client Needs & Research

Recent research reveals that an increasing proportion of retirees carry mortgage debt into retirement, creating financial strain and complicating retirement strategies. This trend underscores the growing complexity of retirement planning in Australia's challenging housing market.

A concerning insight from Mercer indicates that insurance inside super may be under threat, with only 10% of insurance inside super being underwritten, raising questions about risk pricing and sustainability. In a related development, the industry is debating whether adverse genetic testing results will impact group life insurance, highlighting evolving challenges in insurance product design.

Meanwhile, REST members have supported pre-budget policy proposals, reflecting growing member engagement in policy discussions. Research also shows that Australians feel overwhelmed by retirement planning, despite awareness of its importance, suggesting a need for simpler education and engagement strategies.

Regulatory Landscape

The second tranche of the DBFO reforms has arrived, replacing Statements of Advice (SOAs) with Client Advice Records (CARs) and introducing new adviser documentation requirements. Industry stakeholders note that details are still needed on the new class of advisers (NCAs) and the best interests duty, highlighting ongoing uncertainty in implementation.

Super funds advocate for 60-day timeframes on breach report handling to manage compliance obligations better. At the same time, the Treasury has been criticised for not prioritising the finalisation of fee consent forms, which has caused industry frustration.

The government's exposure draft has fulfilled the industry funds' advice wish list, potentially shifting the competitive landscape for financial advice. Additionally, the industry is preparing to implement payday super, which remains on track alongside the $3 million super tax changes.

Industry Movements

A surprising development is that FSU has criticised AMP's staff surveillance practices, highlighting workplace culture tensions at the wealth management giant. Meanwhile, MSC has appointed a new Chief Operating Officer, strengthening its leadership team as it navigates industry changes.

On the strategic partnership front, My Dealer Services has secured a deal with CFS to enhance technical support offerings for advisers, demonstrating continued collaboration between service providers amid regulatory shifts.

Looking Ahead & Key Takeaways

Key Takeaways:

In light of the increased regulatory scrutiny, industry consolidation, and evolving member needs, superannuation funds should prioritise the following actions:

• ☑️ Enhance focus on governance and compliance: APRA and ASIC are increasing their enforcement activities, signaling a need for funds to strengthen their governance frameworks and ensure full compliance with all regulations. This includes ensuring board members possess the necessary expertise, maintaining robust risk management practices, and preparing for regulatory changes such as the Tranche 2 AML/CTF and deferred sales model reforms.
  
  
• ☑️ Prioritise member outcomes and engagement: Funds must address the growing concerns around retirement adequacy and gender disparities in retirement confidence. This can be achieved through:
  

1. 1. • - Developing innovative retirement income products and solutions.
      • - Providing personalised advice and financial wellness programs.
      • - Leveraging technology to enhance member experience and engagement.
      • - Focusing on financial literacy and targeted interventions to improve women's retirement outcomes.

• ☑️ Adapt to the Evolving Regulatory Landscape:
  
  
  • • - Regulatory Engagement: Actively engage with regulators to shape policy that supports the industry's ability to deliver optimal retirement outcomes.
    • - Proactive Compliance: Implement robust compliance frameworks to mitigate the risk of regulatory penalties and reputational damage.

Looking ahead:

The superannuation industry operates within a dynamic environment. To navigate future challenges and opportunities, the industry should closely monitor and consider the following events:

• ☑️ Federal Budget 2025: The industry should pay close attention to the implementation of superannuation policy changes that arose in the Federal Budget, such as:
  
  
  • • • - Tax Reforms: Monitor changes to tax settings for superannuation, including the transfer balance cap proposals.
        
      • - Policy shifts related to retirement income and the age pension.
        
        
• ☑️ Federal Election 2025: With retirement system fixes identified as an election priority, the industry should:
  
  
  • • • - Assess the superannuation policies of major political parties.
        
      • - Consider voter sentiment and priorities regarding retirement savings and financial security.
        
        
• ☑️ Global Economic Outlook:
  
  
  • • • - Interest Rate Trends: Monitor global interest rate movements and their potential impact on investment returns and funding costs.
        
      • - Geopolitical Risks: Assess geopolitical risks and their potential consequences for financial markets and the broader economy.
        
        
• ☑️ Technological Advancements:
  
  
  • • • - AI and Automation: Explore the potential of AI and automation to improve operational efficiency and enhance member experience.
        
      • - Cybersecurity: Prioritize cybersecurity measures to protect sensitive member data and safeguard against cyber threats.