AIOFP executive director Peter Johnston has claimed that the “current push by the institutional lobby to eliminate the best interests duty in favour of a good advice concept has chilling similarities to the original intention and devastation of the s923A legislation in 1997”.
Providing background on the s923A legislation, Mr Johnston drew a parallel that the goal is to make all advice look the same to the consumer.
“During the 1990s, the percentage of financial advisers aligned to the institutions were well over 70 per cent of the total advice community, something the institutions did not want publicly exposed,” he said.
“To ensure institutionally aligned advisers did not get ‘discriminated’ against by consumers for their conflicts, the institutional lobby campaigned to get the very restrictive parameters of s923A legislation in place.
“Until FOFA changes in 2012, product commission was the most prevalent way for advisers to get paid for dispensing advice to consumers. With s923A stipulating that the term ‘independent’ can only be used if no commission was received by the adviser, it literally precluded over 99 per cent of the advice community from using the term – essentially making ALL advisers to look the same to the eyes of consumers.”
Mr Johnston added that the Australian Securities and Investments Commission exacerbated the problem by allowing institutionally aligned practices to operate under “independently” sounding names, adding it was this “gross manipulation of the law and no Canberra representation of independently owned advisers that brought the AIOFP into the market in 1998”.
He also pointed the finger at the Financial Services Council and the Financial Advice Association Australia (FAAA), lumping them together as part of the institutional lobby looking to replace the best interests duty with a “good advice concept that allows institutions to operate their conflicted business models in a diluted legal environment and critically, it will make all advisers ‘look the same’ under the law”.
“This is not a favourable outcome for consumers on both fronts,” Mr Johnston said.
“Once the parameters of a good advice concept are known, it may then be appropriate to be applied to the minister’s preferred model of internal staff dispensing product information to consumers in a compromised environment.
“We believe independent/independently owned advisers should operate under a best interest duty to protect consumers from market conflicts and allow these advisers to professionally differentiate themselves for consumer choice and consideration.
“We also believe todays more educated consumer will appreciate the advantages of dealing with an adviser bound by a best interests duty.”
What a bloody mess this industry has become.
Super fund trustees are required to exercise their duties in the best interests for their members. No one in government seems to ask how a sponsorship of a stadium or a football team, or a union representative or for that matter the funding of promotional advertising (Care super) is in the best interests of the members. It can only be that the Trustees and their associates are using up members funds to undertake these activities. It aint working now folks!
And if anyone can explain to me how default insurance cover, with truckloads of nasty exclusions, and an annually reducing benefit, is in the best interests of the member , I’d be pleased to hear.
Independent does not equal independently owned.
It should
Too often, our representative bodies sacrifice our requirements for the requirement to appease those in power in order for themselves to remain in power. As a result, we’re forced to deal with the consequences. Thanks a bloody lot.
I can see it now…Advisers will be saying[i] “I appreciate the Advice Fee you’re paying at Hesta Super is Nil and I need to charge you $8,000 but I’m working in your best interest. Now I can see my recommendation to add $300,000 to Super, is exactly the same as the Hesta adviser but my recommendation even though the same, you can be assured it’s in your best interest”.[/i]…Good one Peter..stick to organizing your next holiday I mean conference. That’s one benefit I don’t want.
Alternatively,
“I appreciate the Advice Fee you’re paying at Hesta Super is Nil and I need to charge you $8,000 but I’m working in your best interest. Now I can see my recommendation to add $300,000 to Super, is exactly the same as the Hesta adviser but my recommendation even though the same, you can be assured it’s in your best interest”
or
“I appreciate the Advice Fee you’re paying at Hesta Super is Nil and I need to charge you $8,000 but I’m working in your best interest. They have recommended you put $300,000 into super, but I have recommended you invest outside super in this investment that I nor my employer have any connection to, because you are only 42 and one of your goals is to retire at 52. By doing this you will be able to access your money before you are 60.”
or
“I appreciate the Advice Fee you’re paying at Hesta Super is Nil and I need to charge you $8,000 but I’m working in your best interest. They have recommended you put $300,000 into super, but I have recommended you invest through an Investment Bond in six equal parts for each of your grandchildren. We recommend this because one of your goals was to ensure your six grandkids got some money from your estate as their parents are careless with money.”
or
“I appreciate the Advice Fee you’re paying at Hesta Super is Nil and I need to charge you $8,000 but I’m working in your best interest. They have recommended you put $300,000 into super, but I recommend you open a SMSF, pay off the loan against your business premises and transfer this to your SMSF. Further, roll the funds already in Hesta to your SMSF. This will save you fees and you will have the added advantage of being able to sell your business premises after you retire at age 60 and pay no capital gains tax.
One of these is getting clients to put money into your employers investment vehicle and the other is financial advice in the clients best interest.
Bloody brilliant. May I add, place the investment bond in a trust(s) with the grandchild(ren) as additional beneficiaries. This will not only offer asset protection and certainty, but, also help with Centrelink income test, especially in relation to home care package fees, later on. Bet HESTA knew this.
Tax on earnings when possible nil in retirement or super abp means this is toilet.
Yes, forget paying off the credit card or mortgage?
Hesta is looking after the best interests of Hesta right?
Michelle, put down the mud bucket and pick up the tool box and start doing a bit more homework to meet your client’s Best Interests!
“I appreciate the Advice Fee you’re paying at Hesta Super is Nil…..”
Who would say such a thing? Won’t that be misleading? The members are paying aren’t they? Please tell me it is disclosed to members?
The recommendation to use good advice is for non-relevant providers, not relevant providers (qualified advisers). Advisers will still comply with BID just not have to check-a-box the safe harbour steps.
The recommendation for superfunds to be able to provide a form of advice is restricted to members of the fund only and the basics such as contribution and the mechanism of starting a pension (housekeeping matters that are financial advice but outside the financial grasp of many, as well as being sporadic and piecemeal).The Trustee is the licensee – the proposed model is the non-relevant providers (name says it all) dispense this basic advice and will have to run to scripts and have supervisors pacing the floor observing.
A storm in a tea-cup is brewing unnecessarily.
So AMP Aligned Advisers recommending AMP products all the time was not the problem it was made out to be after all?
The issue is though that this “basic advice” from Superfunds can have big consequences. Will a non-relevant provider need to worry about pesky things like timing contributions into super to align with when they sell an investment property and have a large capital gains liability; or investing money outside super so members can retire before they are 60 or is put more money into our super fund always good advice?
Level the playing field. Yes, force the call centre staff to maintain the same professional qualifications. Allow the client to reap the benefits of a highly competitive market place without having to self-gauge the benefits of cost vs advice vs branding vs adverts vs BS.
We should mirror the UK, independent means not employed or influenced by a product provider or entity onwned by a product provider or insurer. So IFA who accept commission on risk, but the same level irrespective of the insurer are classed as independent. This works for the consumer and separates the advisers from conflicted to unconflicted. The australian definition only helps mask product floggers and conflicted MDA models
Please don’t use logic or common sense, it has no place in financial planning within Australia. By the way I agree with you 100%.
Independent in the current form (including not taking commissions) is the most conflict free advice and should not be changed.
I see it often where new clients are way over insured and yet their existing adviser doesn’t encourage them to reduce the cover because this would also mean their commissions are reduced. Clients are never told that by the adviser taking commissions their premiums are nearly 30% more every year.
Not true, there are many MDA providers taking a % based investment fee flogging in-house investments. Gamed often.
If you are not putting the client in a better position, then the adviser is not being of any value whatsoever.
Its interesting to note having worked at Mercantile Mutual/ING 1995-2000 both in SA and NSW Head Offices in Customer Service we were strictly prohibited from offering assistance in product selection. Why? Because our products may not be suitable for the clients circumstances. Hence Funds should NOT offer advice unless its basic Risk Profiling, explaining returns or assistance with Nominations or withdrawals. Speaking to a colleague who was Investigator with ASIC, even he said ASIC’s stance is for clients to be be advised for consumer protection. Answer? Loosen up the strings and allow Advisers to give advice without drowning them in red tape!
There is no way on this earth that a call centre employee at a super fund should be able to explain or advise a member in relation to the various types of Nomination of Beneficiaries as this wholly encompasses estate planning considerations on every level.
The Nomination of Beneficiary is one of the most important components of superannuation strategy to get right and to regularly revisit in light of changing circumstances within families and within relationships of dependants of superannuation members.
With the plethora of varying family structures, it is essential the advice received in regard to this area is fully and thoroughly researched and every single detail of a client’s personal position including ensuring a valid Will and Enduring Power of Attorney is considered and implemented in unison with the completion of Nomination of Beneficiary.
I would like to know how many younger Industry Super members around Australia would have never completed a Nomination of Beneficiary or have nominated their sister, brother, mother, father or best friend……none of which would qualify as a dependant under superannuation legislation and more than likely, a majority of those younger members would also have no Will in place.
History is not repeating itself. For example, super funds are totally different to the big banks and will absolutely have members best interests at heart, not their own interests. It’s going to be different this time! The royal commission we had was on the banks. These are super funds. See? Different!
This is sarcastic isn’t it?
I’m not sure if it is sarcastic but I hope so
Come on! DO you think a Super Fund giving advice will recommend the client withdraw from that Fund and move to another Fund even if it’s in their ‘Best Interests’?? Get real. Super Funds should only be allowed to give General Advice on the factual features of their Fund, not if the Fund is suitable for them or not. To find out which Super Fund a client should be in, is part of the Financial Planning process for a qualified Adviser to undertake. Let’s not give that job to a call center person with 2 weeks training.
Yes I do – and I have done this many times for clients if it’s in their best interest and meets their goals. Maybe don’t judge other advisers by you own standards.
Lol ok tom
Please Tom, I was born yesterday and I didn’t see you in the maternity ward?? To reduce the discussion to personal abuse reflects more on you than me! TOM, yfi – I am a qualified Adviser of 30 year’s experience. I don’t need to advise clients to switch Funds for any commercial benefit of my own because I charge the same fee irrespective of which Super Fund the client is in; and BTW, I have clients in Industry Funds because it is in their Best Interests. I also use Retail, APRA and SMSF Funds depending on the client’s needs. Sorry, I’m not a one ‘trick pony’ that an employee of a Super Fund is.
No different. Both have a commercial imperative. Both have incentivised management & staff. Do your research & try again.
Both industry and retail super funds still have a commercial imperative despite the rhetoric.