Delivering a low-cost advice model for all

Let me start by emphasising that the Financial Planning Association (FPA) fully endorses the intra-fund advice initiative and agrees that this is a breakthrough solution to bringing low-cost advice to Australians.

The FPA has long argued that low-cost advice in Australia is elusive, and that many thousands of consumers could do with a little help from time to time, best achieved with some good financial advice tailored to the particular needs of the consumer.

That said, the FPA is disappointed with ASIC’s announcement because of the manner in which intra-fund advice will be implemented.

Earlier this month, the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, announced that the Australian Securities and Investments Commission (ASIC) was launching new regulations regarding intra-fund advice.

There are two specific issues of greatest concern.

The first is that in granting Class Order Relief from s945A of the Corporations Act 2001, there are no real consumer protections embedded in the provision of intra-fund advice through the trustee system, other than the fact that a ‘special relationship’ exists between a superannuation fund trustee and its members.

This means, by implication only, that the trustee’s Australian Financial Services Licensee will always provide good advice to its fund members because it ought to, with this special relationship. And this might very well prove to be true. Super fund trustees have an excellent track record in Australia and it’s hard to remember the one or two failures that have occurred in this sector since superannuation took off in the mid-1980s.

But it may not prove correct either, particularly as the skill set now needed is quite different and the entity providing it is indeed separate to the trustee. Advising an individual fund member with $5,000 is quite different to determining the fate of billions of dollars of superannuation assets across millions of members.

The second issue is the granting of Class Order Relief to one category of regulated entity over another.

The regulated entity most equipped to give advice, which clearly doesn’t muster in the ‘special relationship’ stakes, gets to continue to give expensive but well protected advice, which usually means that no advice is provided at all because of the costs, hence the problem.

The entity that must now get licensed and train call centre operators with minimum RG 146 competency requirements can now give low-cost, scripted advice with few protections.

It just doesn’t make sense from a policy, enforcement or delivery perspective.

At a time when consumers have been very concerned with their ever reducing account balances and a loss of faith in the financial services sector, particularly superannuation, removing consumer protections for thousands of super fund members seems a strange thing to do, even if the advice is limited.

At a time when there is mass confusion around who should be called a financial planner and who simply shouldn’t use the term, why introduce a whole new class of ‘authorised representative’ under the guise of a whole new (world first) category of fiduciary responsibility called ‘special relationship’?

Why enforce a single licence, single product, single solution arena that has clearly not succeeded in other well known and very recent corporate collapses? And how is this to be enforced?

And should the advice not turn out too well, who does a super fund member complain to — the Superannuation Complaints Tribunal or the Financial Ombudsman Service?

The second issue of creating an un-level playing field is equally as perplexing.

Here you have 16,000 capable financial planners ready, willing and able to dispense intra-fund advice, and yet all they have been given is some more sage words from ASIC and a new ‘how to’ guide.

Our concerns are not self-serving as has been the general response. Our concerns are genuine, and reflect experiences that financial planners have directly been involved in and do not want replicated.

Those with real self-interest and very active lobbyists are the super funds themselves because they now have an avenue to retain members cost effectively, retain market share and remain competitive — all under the false guise of advice but without the financial planner.

Sure, financial planners would love to provide low cost advice to their super fund clients, and prospective super fund members. And sure, financial planners have wanted to reduce the costs of advice since FSR came into being in 2004.

Financial planners have never asked for special dispensations but perhaps that time has come.

For one thing, FPA members who meet much higher than RG 146 standards are at least competent, experienced and capable of providing such advice, whether at the low-cost intra-fund end of the spectrum or the more comprehensive end of the advice spectrum.

The FPA will now look to leverage the situation to ensure that members and their clients are not disadvantaged. Some interesting and worthwhile ideas are already surfacing.

One financial planning firm suggested in Money Management recently that intra-fund advice might perhaps best be called ‘informed guidance’ rather than ‘limited personal advice’, which means that any presumably competent individual should be able to provide it.

We have some sympathy for this despite the fact that recommending the choice of an investment strategy even within the super fund is indeed still a recommendation.

Another idea being suggested is for financial planners to secure cross authorisation with the licensee of a super fund trustee, and I’d suggest this was already well underway.

The move with the most support seems to be to seek the same rights as super fund trustees and ask ASIC to extend the relief offered to all regulated entities and level the playing field. If financial planners can demonstrate that ‘special relationship’ then this is tenable, and frankly, this should not be hard to do.

Either way, we will not give up on the quest to provide more low-cost advice to super fund members, and to all Australians who could do with a bit of help right now.