In a recent ifa webinar discussing the recommendations from the Quality of Advice Review, a number of these issues were raised again, and the follow-up questions from those who tuned in indicated that, for some advisers, this area requires further clarity. This article addresses common threads in the questions from the audience.
Despite relevant concerns from within the financial advice profession, it’s imperative to keep in mind that not enough Australians are able to access, or afford, good quality personal financial advice. If the proposed advice reforms open advice up to more Australians, that has to be a good outcome. It provides the opportunity for many to start their advice journey and be better prepared, and more informed, for when they do need to engage a financial adviser to assist and guide them.
Advice quality
Recommendations from the Quality of Advice Review arguably aid in clarifying some of the issues.
Let’s start with the question of quality. Currently, any intra-fund advice provided by (or on behalf of) a superannuation trustee must meet all the same standards as those where the advice is provided by an independent adviser. The provider of the advice (the individual) needs to meet the professional standards requirements previously set by FASEA, and now administered by Treasury. The Code of Ethics applies to the provider. The advice needs to be in the best interests of the member receiving the advice.
So, what changes if the recommendations are implemented? The first is that the quality of the advice will be measured against a new “good advice” duty, rather than the existing best interests duty. This doesn’t mean advice will be of any less quality than it is today — it is, in simple terms, a change in focus from the process to formulate the advice to the quality of the advice itself. And this “good advice” duty, about ensuring the advice is fit for purpose, applies across the board to all personal advice, whether intra-fund, limited or comprehensive. So we have the same standard for advice quality, whether delivered through an intra-fund model or by an independent adviser.
It has also been proposed that the existing best interests duty be removed, and essentially replaced with a legislated version of the existing fiduciary requirement to act in the best interests of a client. This is not strictly about the advice provided, but the way in which the adviser operates. It is the same duty that was proposed back in 2009 from the Ripoll Report. The difference is that it is proposed to only apply to relevant providers — that is, an individual financial adviser.
Some have questioned the equity of such a measure, and whether it imposes additional obligations on a financial adviser that may not apply to a superannuation trustee (or those employed by it). Whilst it is correct to say that this recommended legislated best interests requirement would not extend to them, it is important to remember that superannuation trustees do have other requirements. Under common law, a fiduciary requirement to manage and look after member’s monies applies, just as it applies for financial advisers. Additionally, superannuation trustees also have a legislated requirement to operate in the best financial interests of their members.
The deliberate absence of the adviser’s legislated best interests duty in the proposed super fund intra-fund advice models was aptly explained by Michelle Levy, chair of the Quality of Advice Review, by reference to the contractual nature of the employee (or contractor) providing the advice to a member of the super fund, and the inherent conflict they owe to their employer. The super fund trustee can essentially dictate what the employee must do — to not follow the correct process places the employee at risk of losing their job. Importantly, this does not absolve the responsibility to provide good advice.
Questions have also been raised about the qualification requirements for those super fund employees providing advice. If they are not a relevant provider, then the professional standards for financial advisers do not apply. This is correct, but it’s important to remember that ASIC has issued Regulatory Guide 146 that requires a licensee to ensure that any of its representatives are adequately trained and competent for the advice service they are providing, which would include the intra-fund advice.
How members pay for advice
Generally, super fund members pay for intra-fund advice through a cross-subsidisation method, or fee paid by all members — irrespective of whether they accessed this advice or not.
Super fund trustees would need to carefully consider the type of advice that their staff are providing, and the controls surrounding it, to ensure it meets the good advice definition. The required level of training is different. This is where the scope of intra-fund advice truly does become limited. With a limited scope, relating to just that fund (and other related, but necessary considerations), an intra-fund advice offer can be provided in a more cost-effective and sustainable manner. Expansive, comprehensive advice takes longer, and necessarily will require consideration of a broader set of circumstances.
If a superannuation trustee were to provide more comprehensive advice to its members, there might be a discrete charge to a member’s account, and there would be a requirement for the advice to be provided by a relevant provider.
Final remarks
It is fair to say more clarity is needed in this area, and not everything will be resolved in the way that all advisers may want. The big picture is intra-fund advice should give more Australians access to good advice. With this in mind, clarifying the nuances and getting the details right on how super funds will provide quality advice, as recommended in the Quality of Advice Review, is a worthwhile exercise.
Bryan Ashenden, head of financial literacy and advocacy at BT
“Any intra-fund advice provided by (or on behalf of) a superannuation trustee must meet all the same standards as those where the advice is provided by an independent adviser”. The key difference being that the trustee can charge all of their fund members an ongoing advice fee, without any consent whatsoever. Whereas the retail adviser is rendered highly inefficient by being buried with Annual Fee Renewal Consent forms (that their counterparts in other nations do not). It’s getting rather tiresome that this fact is continually glossed over by the Super Funds. Enough is enough. Time for a fair playing field.
With regard to the cost of advice being covered by the entire membership, it provides scale and opportunity for anyone and everyone within the fund to gain access to the service whether they require it or not.