Last month, ifa hosted an in-depth discussion of the key recommendations from the Quality of Advice Review (QAR) in a live and free webcast featuring Michelle Levy, researcher and speaker Dr Katherine Hunt, and sponsored by industry leaders BT and HUB24.
Having received a large number of audience questions, ifa spoke to Bryan Ashenden, head of financial literacy and advocacy at BT, in order to offer more clarity on those more contentious parts of the QAR.
We bring you Mr Ashenden’s response in its entirety.
Even before the Quality of Advice Review was commissioned, many advisers had questioned whether it was appropriate for superannuation funds to be able to provide advice to their members. Concerns had been raised about the quality of this advice and how members would pay for the advice.
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.
Do regulators have a problem? How to allow a certain class of product provider the ability to sell product via advice with inhouse staff and charge from the admin fee (back in favour again?) – without all the red tape, restrictions, education, conflicted advice issues imposed on another set of product providers? Tricky stuff – Michelle Levy – did she do a good job and if so, for who?
A lot of these people that will be chatting to super funds aren’t financial planning clients – they merely need some basic guiding like Inv choice / TTR / Pension setup / Centrelink. Hardly anything complex or challenging that highly educated advisers would be interested in providing.
True, but I worked for one of those so called ‘adviser call centres’ once after being made redundant in a prior job. It was just as an interim measure until I found my next adviser job. I quit on the second day in disgust. They were a team of novices who were giving personal advice, that was actually ill-informed opinion, and dressing it up as general advice. They went out of their way to discourage clients from getting actual personal advice, even when it was required. Many conversations drifted outside the super fund too. I was appalled.
How members pay for advice
Generally, super fund members pay for intra-fund advice through a cross-subsidization method, or fee paid by all members — irrespective of whether they accessed this advice or not.
Nothing like back to the future.
Is this not ‘Fee for no Advice’.
Is this not what the industry got hammered for, trailing commission by everyone allowed free claims assistance to the clients that went on claim, or helped to subsidize the advice given to new or repeat clients? What next?
Byran Ashenden’s views are almost always spot-on. I’m guessing Treasury already knows this. BTW, he’s a great lecturer, too.
This dosen’t “address” my concerns, it merely confirms them. Australians are about to be ripped off. You thought Banks were sales oriented, well they are nothing compared to these guys and they’re about to be unleashed.
The problem is that the whole argument is built on a lie. There are more than enough advisers to go around. The only problem is the red-tape that no other profession has to contend with. Opening up advice to be delivered by unqualified, inexperienced backbackers in call centres is not a good solution for consumers on any level. To hear institutional voices trot out these self-serving arguments makes me nauseous.
Bryan, you have conveniently left out some critical points. One can only assume that given your role is to advocate for what is in BTs best interest that this is intentional. Here are three:
1. [i]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[/i]. Yes, but the issue you don’t address is whether they currently meet this requirement. Would an adviser working for a super fund that only has 4 pre-mixed actively managed investment options ever recommend that their clients move to another fund that allows them to invest in passive investments? If the answer is no, then how can these funds say they are providing advice in their clients best interest?
2. [i]ASIC has issued Regulatory Guide 146 that requires a licensee to ensure that any of its representatives are adequately trained[/i]. You don’t mention that the minimum requirement here is a Diploma equivalent. Why at a time when the education requirements for financial adviser are being increased, do those who happen to work for a product provider get to operate with minimal training. Is it that they are really in a sales position and not an advice position?
3. [i]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.[/i] This is the glaring issue. Staff will be nothing more than glorified sales people. Is this what advice is going to go back to?
Super funds and product providers do have a role to play in educating consumers. But to suggest having these organisations operate with opaque safeguards is good for consumers is laughable.
Cross Subsidisation of Advice should be outlawed.
[b]Why is it good for 90% of Super Fund members to pay HIDDEN COMMISSIONS for NO SERVICE ?
It’s not. [/b]
All Advice should be paid for by the person getting the Advice. Sure if it’s about their Super it gets paid from their Super Fund. By a Fee charged to that person only.
If they Super Funds wish to keep charging all their members (without consent) for inhouse “advice” that most will never receive, then it is only fair that the Annual Fee Renewal Consent forms imposed on retail advisers (that does not exist in any other nation on earth) be eliminated, reverting back to the internationally recognised “Opt Out” system. Time to level the playing field against retail advisers. https://www.ifa.com.au/editorial/27361-why-am-i-paying-a-fee-for-no-service