FOFA fails on group remuneration
The Federal Government's Future of Financial Advice (FOFA) changes have failed to provide an appropriate model for fees to be charged for services provided on a group basis, therefore significantly disadvantaging those assisting corporate superannuation funds.
That is the analysis of the Corporate Super Specialist Alliance (CSSA), which has told the Parliamentary Joint Committee (PJC) reviewing the FOFA bills that it is concerned its members will not be able to be remunerated for the work they perform once FOFA is implemented and commissions are banned on both superannuation investment and group insurance within superannuation.
In a submission filed with the PJC this week, the CSSA also pointed out that research conducted by Rice Warner in 2008 had confirmed that corporate super master trusts represented a better value proposition than industry super funds.
It said the research had found large corporate super master trusts charged members an average fee of 0.79 per cent a year compared with industry super funds, which charged an average fee of 1.07 per cent.
However, on the key question of remuneration, the CSSA said it was important to understand that payments received by corporate super specialists were for insurance services provided and not for providing personal financial advice.
"Ultimately group insurance is just a solution that is more beneficial (with lower costs and tailored features) than a series of individual contracts and it makes no sense that payment can only be made from the least efficient solution," the submission said.
It said removal of commissions would create an unlevel playing field and could result in financial advice to a consumer that sees them using a less appropriate insurance solution.
The CSSA submission provides an answer to the commissions issue, suggesting that where insurance services are provided to an employer group, then an insurance service fee is allowed on a "dial-up" basis.
It said that, effectively, the Insurance Service fee would operate within group insurance in similar fashion to the way in which asset-based fees operate within investment and superannuation.
AUTHOR
Mike Taylor
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