Reforms to tackle predatory practices, announced by Assistant Treasurer Daniel Mulino in a speech to the National Press Club, follow the collapse of two investment funds that wiped out more than $1 billion in retirement savings.
The failure of the Shield and First Guardian master funds exposed vulnerabilities across the financial ecosystem, Dr Mulino said on Wednesday.
"Access to financial advice has shrunk and bad actors have become more sophisticated, attracted by Australia's huge pool of retirement savings," he said.
"They involved sophisticated and often predatory lead generation practices, advice arrangements that may have failed the best interest duty, and managed investment schemes alleged to have involved mismanagement, conflicted conduct and, potentially, fraud."
In response, Dr Mulino announced a three-pillared package: strengthening protections across the superannuation, advice and investment ecosystem; improving access to safe financial advice; and, making the Compensation Scheme of Last Resort more financially sustainable.
It will include a crackdown on lead generators, who used social media, online ads and cold calls to lure people into putting their retirement savings into risky investments, such as the Shield and First Guardian schemes.
Unlicensed real time communication about superannuation will be banned, while licensees will be required to take reasonable steps to ensure lead generation activities comply with legal requirements.
The anti‑hawking regime will also be bolstered, with stronger consent requirements, limiting the exemption for financial advisers to existing clients and harsher penalties for breaches.
Oversight and governance of managed investment schemes will be toughened up.
"Audit and assurance requirements will be strengthened, and managed investment schemes will be required to notify ASIC when they freeze, suspend or otherwise restrict investors' ability to redeem their investments," Dr Mulino said.
The Financial Advice Association of Australia has previously called on Labor to crack down on lead generation practices, which can steer consumers towards inappropriate financial products.
''Consumers need stronger protections against predatory lead generation, while still being able to find the right adviser for them," the association's chief executive Sarah Abood said.
Superannuation trustees will be required to fully compensate members for losses made when a trustee has breached its obligations.
Trustees that offer higher-risk options will be saddled with new capital requirements to make sure they have enough capital on hand to meet those obligations.
The financial advice sub-sector will be hit with a special levy of $170.3 million to support the Compensation Scheme of Last Resort, an industry-funded safety net that pays consumers that have fallen victim to the collapse of a financial firm up to $150,000.
The annual levy is usually capped at $20 million per sub-sector.
The sustainability of the scheme has come under strain given the high losses incurred by collapses such as Shield and First Guardian.
The special levy will be funded by a three-tier "waterfall model", which was floated by Treasury in a consultation paper in April.
Self-managed super funds will be required to contribute to special levies in future years.
"SMSFs are a legitimate and important part of Australia's retirement income system," Dr Mulino said.
"They are also part of the financial services ecosystem that benefits from the existence of a compensation framework."
Dr Mulino also announced the next steps of financial advice reforms initiated by his predecessor Stephen Jones, called the Delivering Better Financial Outcomes package.
They include a new class of adviser, limited to APRA-regulated super funds and life insurers, and a legal obligation for super trustees to comply with caps on fees that can be deducted from a member's account for financial advice.
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