In an email to parliamentarians sent on Sunday, AIOFP executive director Peter Johnston said the last major issue for government to address in ensuring an advice industry that was centred around consumer best interest was “vertical integration [in] the industry super fund landscape”.
“Industry funds… are permitted to charge a margin to all members to fund advice but less than 10 per cent of members seek advice – a classic fee for no service scenario that was castigated by Hayne,” Mr Johnston said.
“This margin funds their 1,000-plus advisers who are paid a salary plus bonus derived from offering members their internal product – this is a disguised commission to reward conflicted behaviour, a clear breach of FOFA/FASEA.”
The comments follow recent reporting from ifa around bonuses received by advisers at First State Super-aligned StatePlus. First State Super recently merged with public offer fund VicSuper, which provides advice to around 2 per cent of fund members per year.
Mr Johnston also pointed out that intra-fund advisers were not required to comply with opt-in legislation due to come into force at the end of 2020, where clients would need to authorise ongoing adviser fees on an annual basis, because the advice was usually included in compulsory annual administration fees paid by fund members.
He added that an easy solution to level the playing field was “for all super fund members, like other consumers, to pay directly for the advice they receive regardless of whether it is general or internal”.
“They [would] have the option of having the fee deducted from their account or paying directly,” Mr Johnston said.
“This will not penalise the circa 90 per cent of super members who do not seek advice from their super fund, leading to healthier account balances for the majority.”
The email was part of the AIOFP’s ongoing adviser awareness program, which aims to educate a wider cross-section of politicians around the dynamics of the advice industry.
The FPA also recently conceded the charging model for intra-fund advice “could be reconsidered”, following a recommendation in its 2020 policy platform calling for a single set of fee rules across all types of advice.
I know I will get howled down here but feel the need put another view on this. However I can appreciate the intent of the article and the reader comments which are almost if not entirely in agreement with the article. However, there are inaccuracies in the quotes, and an understanding of the definition of Intrafund Advice is important to overlay the comments Peter Johnston makes. Intrafund advice is covered under Sect 99F of SIS Act and Information Sheet 168 from ASIC referred to as Collectively Charging for Intrafund Advice.
First, Intrafund Advice cannot be provided on a product other than the super/pension account a member already has, no consolidation is allowed – so yes I get the vertical integration argument, but there is no product sold, the member already has it, apart from advice to move to pension or back. Effectively strategic advice within the fund.
Second, Intrafund Advice is not able to provide an ongoing service, review scheme and therefore cannot charge for it. Likewise there is no Opt-in as a result. There is no fee for no service issue as there is no ongoing agreement. The argument of cross subsidisation of fees by members is only valid for initial advice.
Third, FOFA legislation is not breached given no ongoing service or fees, likewise FASEA is not breached as no products are paying commission albeit the article tries to make a link between fund fees and a commission.
I have no issue if super fund members were made to pay for advice out of their pocket rather than through a fund and cross subsidisation was abolished. The SIS Act needs to change first. And I think we will see smart funds moving in this direction. The accuracy of Peter Johnston’s comments in the article are misleading and inaccurate without all the facts. His solution is solid but the basis is of his argument is inaccurate.
OK Anonymous (# 15) – put your name to this so Peter can contact you to discuss.
I’m more than happy to have even 1,000 clients all paying me a % of their account balance every year to not get ongoing advice. I will then provide 1 off advice limited to the product they already have to those that call me up.
That doesn’t meet current community standards does it. So why can some do it and some can’t?
While you make a couple of decent points, much of your argument is also inaccurate I’m afraid.
First of all, you seem to have adopted the Brammall/Brown misrepresentation of the FASEA Code that seeks to tie it to payment methods, specifically commissions. The FASEA Code does not preclude or mandate specific payment methods. The FASEA Code says that conflicts must be avoided. If an intrafund adviser recommends an additional contribution to their employer’s fund, that is clearly a conflict that has not been avoided, and is a breach of the FASEA Code.
Secondly, you are hiding behind the SIS rule that precludes consolidation recommendations as intrafund advice. While this may be technically correct, it is a rule that is selectively ignored by the regulators. Everyone involved in the industry knows that union super funds are constantly advising their members to consolidate balances from other super funds into theirs, without any analysis of the impact. This advice frequently leads to irretrievable loss of valuable benefits from the member’s other fund, such as insurances with no exclusions, or very low cost corporate super fees. However this is totally ignored by regulators.
He’s hiding behind the SIS Act argument, because he collects Intrafund bonus payments & his national advocacy group supports the continuation of this racket.
This long explanation provided by Anonymous sounds quite similar to the type of argument used pre-FOFA by advisers who held large Corporate Super books.
However they were not allowed to continue because it was not in line with FOFA or societal expectations.
Now here we are hearing it all over again for intra-fund advice.
For something that was supposed to be crystal clear….
This just highlights what I have been saying for some time. ‘Professionalising’ Financial Advice is great but removes us from the relatively simpler, product-related advice needs. This is the gap that Intra-Fund ‘advice’ (and I use the term loosely) fills but is in conflict with he myriad of FASEA, Opt-In etc requirements. The solution that others have also supported, may be a 2-tier system whereby you are either giving broader ‘advice’ or just dealing with a product. This could be a simple portfolio review or making a super contribution or even moving to a TTR – all the stuff that phone-based people do at Industry Funds (i.e. sales) and is becoming way too expensive for licensed Planners to deal with. The lower / more basic tier could also be a starting point for new entrants, because expecting someone to complete a degree and then a Professional Year and then to be generating maybe $200k in fees a year straight away, to pay their wages, is a tough call. #whatsoldisnewagain
So if a husband and wife have super with “Retail Platform”, adviser produces SOA with super/retirement advice for both, but only charges the one account (not both) for the cost of the advice – I assume the adviser has breached the sole purpose test under the SIS Act and will be in trouble.
But if an industry fund provides intra-fund advice, and spreads the charge across 500 other accounts – wholly unrelated to the advice recipient – this is okay and within the legislation.
Riiiiiiiiggggghhhhhttt……………………………
Thankfully there is FASEA. That will set things right. Surely.
Hit the nail on the head! Someone tag Ben Marshan from FPA head of policy, love to see him try and justify how this is “fit for purpose” for the members not using the service
Ladies and gents, be careful what you wish for. If you like the industry funds to be regulated the same way as practising advisers, it is likely that the industry funds will exit ‘advice’ altogether. This will mean our ASIC levies and costs will go up commensurately. We felt this when the banks exited advice. What’s good is bad, and what’s bad is good.
Right now the very limited industry fund advice is considered to be fully qualified advice when it is not. Yes, the cost will go up but it is time that regulated advice is NOT given by product providers. Industry funds are product providers.
Union based super funds will not ‘exit” advice, as they need their gang of bonus paid marketing reps to continue rolling competitor funds into their vertically integrated monopoly, under the pretense that it is “free”, when in reality it isn’t.
This article should be personally handed to the minister and ASIC. Great factual article and extremely relevant. Time to have just one playing field, there is zero reason to give the industry funds any leeway in the current legal climate. maybe send a copy to those lawyers as well, I’m sure they will be happy.
Did someone say KFClass Action…?? haha
Absolutely spot on. Too much clients miss out on unbiased advice, because their fund will NOT allow an external ASF to be charged.
I can’t believe this even needs to be discussed fee for no service was slammed in The Royal Commission and many funds are now paying fees back to clients who did not receive the service. Why aren’t industry funds??? Conflicted behaviour is in not aligned to FASEA so how can this model continue??
If it is good enough for intrafund advisers to get paid salaries & BONUSES (without being required to obtain Opt in renewals) & it’s good enough for advisers of Wholesale clients not to chase up Opt in renewals, then logic says it’s good enough for retail advisers to be able to charge (fully disclosed) ongoing service support fees, without having to chase up Opt In renewals (in particular during a Covid19 pandemic). Time for a consistent level playing field.
This is why AIOFP & the SMSF Association is picking up new members & the other advocacy groups are losing them – because they’ve let their retail advisers hang out to dry on Opt Ins. It’s a disgrace. All animals are equal, but some are more equal than others.
At long last, an industry association that speaks up for all of us advisers. Well done Peter!
i would of thought it was a level playing field for all.
seems it’s not. nothing surprises me any more.
time to get out of this BS industry. It will never be a profession.
too much of a gravy train.
‘Would have’ not ‘would of’. And how is this a surprise? Industry fund advice rorts have been hotly debated for years.
Good idea, but this isn’t the the biggest problem with intrafund advice.
Of greater concern is the way super funds are increasingly providing intrafund advice as “general” advice, even though it is actually personal advice. “General” advice can be given by unlicensed, untrained, super fund sales staff without any requirement for SoAs, Best Interest Duty, or FASEA Code compliance. This significantly reduces the quality of advice, and the protections for consumers. It is a return to the AMP model of last century.
Agreed.
they didn’t like the bank staff selling super funds under “general”
This is an excellent opinion and one I wholeheartedly agree with…and I’m not a financial adviser or service provider of any kind!
Totally agree!
In a world of tainted views and bias, this is a brilliant piece of work. It focuses on the very core of superannuation and member choice. If funds, industry, retail or otherwise, want to truly provide choice, then let consumers decide to use an adviser or not. And let’s allow any client to select any adviser and pay in any way “they” choose!!!! Then we can truly call ourselves a profession and meet the core point of superannuation.
Congratulations to Peter Johnson.
An absolute COMMONSENSE APPROACH.
Rather than politicians and vested interest groups deciding on how our collective clients pay for advice let’s leave it up to the individual clients. There is enough legislation to protect them, ie. OptIn, Fee Disclosure Statements, Fees from Superannuation accounts only allowed to pay for advice in relation to the fund. Let’s set the default advice fees of all super funds to ZERO and allow clients to sign off on the fees they agree to pay to their adviser, Inhouse or not.
Full and clear disclosure of all fees is the best outcome for all.
Here is an idea. Why don’t we make all Financial Advisers comply with the same rules and ban intra-fund advice fee for no service like everyone else
If you look at how Super funds are invading industry associations like the FPA, I don’t think it’s going to happen. Industry Super funds are now sending the FPA one big fat cheque and a list of advisers names as members, that’s hard to compete against when we’re just individual advisers. Furthermore political links to the Labor Government also will prevent it. Furthermore it’s a pretty complex subject to explain to a Polli.
This smear campaign against the FPA is interesting. Why are there all these attacks on the most effective advocates we have? Whose agenda serves it to weaken the representatives of financial advisers?
When the FPA effectively advocates for the full removal of Opt Ins, enjoyed by Intrafund advisers & advisers servicing wholesale investors, perhaps the attacks might stop. Retail advisers have had enough of the FPA destroying their businesses, putting their staff on the scrap heap.
The smear campaign is more of a fact campaign against the FPA highlighting their double standards.
One minute they want a “Profession” where conflicted remuneration does not exist and clients pay for the advice they receive directly – but this in fact this only applies to privately run Financial Planning business.
For the Product Providers, well, the FPA supports having directly employed and directly controlled Financial Planners being paid out of product, via a fee charged to all members, having sales staff provide general advice and if no service is provided in return for the fees that are charge to the members, then that seems to be OK as well as there is no opt in, and no way as far as I can see to opt out of this fee.
You believe the FPA is the most effective advocates we have that’s debatable but please, tell me what principles does the FPA stand for?
A fantastic piece of leadership. Great call. What the entire industry needs is an equal playing field. That’s all we’re asking. Do we want to be financial planners or just a mixed bag of nuts.