Tapping a vast market for advice
The Financial Planning Association (FPA) has encountered its fair share of criticism over the referral arrangement it has agreed with construction industry superannuation fund, Cbus.
The comments section attaching to Money Management's stories referencing the Cbus arrangement has contained some strongly adverse commentary, much of it suggesting that the FPA had in some way been guilty of selling out to a large industry superannuation fund.
In some respects, the criticism of the arrangement appears to reflect the FPA's involvement with Industry Super Australia (ISA) during the horse-trading which led up to the former Labor Government's tabling of its Future of Financial Advice legislation and perceptions that it amounted to an unacceptable compromise.
However the reality of the FPA arrangement with Cbus is far more pragmatic than it is political. It represents an attempt to provide access to a large market with largely unmet demand.
The key to understanding the pragmatism of the relationship lays in some data which will be released to this week's Super Ratings Day of Confrontation event in Sydney - that the average adviser to member ratio for industry funds is 18,000 to one. The ratio is much lower with respect to the retail master trusts.
Therefore, even allowing for the reality that most of those 18,000 superannuation fund members will want intra-fund advice, scaled advice or general advice rather than holistic advice, they still represent a significant market for advisers which should not be allowed to go untapped.
And notwithstanding the frequent critics of the FPA/Cbus arrangement, Money Management understands that the reality is that some 300 planning businesses have become recognised as professional eligible to work within the Cbus arrangement.
Little wonder, then, that FPA chief executive, Mark Rantall, does not resile in any way from his organisation's commitment to the Cbus exercise; rather he sees it as providing a template which can be utilised as part of planners more broadly accessing members of industry superannuation funds.
As data to be presented to this week's SuperRatings event will make clear, there are compelling commercial reasons for the industry funds to look beyond the issues which gave rise to the "compare the pair" television advertising and which created a "them and us" philosophy with respect to financial advisers.
The SuperRatings data suggests that the demand for good advice within superannuation funds is so vast that it cannot be met without objectively tapping the resources of reputable third party financial planning firms.
So the point Rantall makes about the turnkey nature of the Cbus arrangement is valid.
The bottom line is that Cbus is not just any industry fund. It is one of the funds central to the establishment of Industry Fund Services which, in turn, has been central to the establishment of so much of the industry funds framework such as Members Equity Bank, IFM Investors and even Industry Funds Australia.
Therefore, if the agreement struck between the FPA and Cbus has passed the test of viability, then it can certainly be viewed as a template to be followed with respect to other, willing industry funds.
Little wonder, then, that at the time of the agreement being formalised in late July, Rantall felt prepared to point to it being a breakthrough.
"These formal arrangements with Cbus give us an exciting insight into a future where trusted professionals may openly collaborate with member-based organisations to deliver high quality outcomes in the best interest of the member," he said.
With the Cbus arrangement having been laid down as a template, it remains to be seen how many other industry funds are prepared to enter into similar arrangements. Some, of course, had already accessed third party planning resources via companies such as Mercer.
Significantly, the Cbus arrangement was hammered out notwithstanding the implementation of the Future of Financial Advice legislation and a Federal Election, suggesting that commercial reality can very often transcend political rhetoric.
Recommended for you
In this week’s episode of Relative Return Unplugged, AMP chief economist Shane Oliver joins the show to unravel the web of tariffs that US President Donald Trump launched on trading partners and take a look at the way global economies are likely to be impacted.
In this episode of Relative Return, host Laura Dew is joined by Andrew Lockhart, managing partner at Metrics Credit Partners, to discuss the attraction of real estate debt and why it can be a compelling option for portfolio diversification.
In this week’s episode of Relative Return Unplugged, AMP’s chief economist, Shane Oliver, joins us to break down Labor’s budget, focusing on its re-election strategy and cost-of-living support, and cautioning about the long-term impact of structural deficits, increased government spending, and potential risks to productivity growth.
In this episode of Relative Return, host Laura Dew chats with Mark Barnes, head of investment research, and Catherine Yoshimoto, director of product management, from FTSE Russell about markets in Donald Trump's second presidency and how US small caps are faring compared to their large-caps counterpart.
