Why am I paying a fee for no service?

I’ve been with industry fund REST since my first retail job. Last week, the super fund issued its Combined Financial Services Guide, which outlines its relationship with Link Advice and how, as a member, I can obtain financial advice.

The FSG states: “The cost of providing general financial product advice is included in the fees charged for membership of the fund.”

“Rest advisers and representatives of Rest and Link Advice are paid a salary and do not receive any commissions or fees for the advisory services provided to you. They may, however, receive a performance related bonus that takes into account the financial services provided,” the document states.

According to ASIC, ‘intra-fund advice’ refers to the types of advice that a superannuation trustee can provide to members where the cost of the advice is borne by all members of the fund. There’s the rub – the advice is borne by all members of the fund. But not all members use this advice. All are paying for the service yet not all are receiving it.

Back in 2011, then Financial Services Council (FSC) chair John Brogden warned against intra-fund advice, highlighting the lack of transparency and ‘hidden’ nature of fees. He said the principles underlying this approach are in direct conflict with the objectives of the Future of Financial Advice (FOFA) reforms.

"Expanded intra-fund advice is the wrong answer and a poor substitute for the tailored, quality financial advice Australians need," Mr Brogden said.

"Expanded intra-fund advice will see the cost of advice cross-subsidised, that is, paid for by members who don't receive advice and have no ability to opt-in or opt-out.

"Rather than unbundling advice costs it will actually sanction hiding advice costs inside the total cost of the product."

He added that the issues with expansion of intra-fund advice is not only a lack of transparency, but it also eliminates consumer control and results in the “majority of fund members paying for something they don't receive”.

Much has changed in the eight years since Mr Brogden made these statements. The introduction of FOFA and the Hayne royal commission have left us in a world of heightened regulatory scrutiny where paying for a financial service we don’t receive is known as ‘fee for no service’. It’s something the major institutions are very familiar with and it is costing them dearly, as the results from the latest reporting season demonstrate.

ASIC states that the types of advice for which a superannuation trustee is likely to be allowed to collectively charge, where the advice is not ongoing, include advice to a member about:

• the extent of cover provided by the insurance arrangements that apply to the member’s interest in the fund and the types of cover that may be suitable for them;
• increasing contributions; and
• changing investment options within a fund.

To me, all of this looks a lot like personal financial advice. There’s nothing general about how much life insurance cover I have, neither increasing contributions nor changing the investment options of my retirement fund. All of these issues are deeply personal to me.

But there is no way for me to opt-out of this service, which is charged as an administration fee and deducted from my super fund contributions. The fee may be small, but that’s not the point. My argument here is simple: I am paying a fee for a service I do not receive. More importantly, I am unable to stop paying this fee.

Any argument that charging all super members is a way of cross-subsidising the cost of advice for those who do receive it is erroneous. Financial advisers received grandfathered commissions that allowed them to effectively provide advice to those who would not otherwise be able to afford it. I can’t see why industry super-aligned advisers can earn a salary and bonus with no opt-in agreement but other financial advisers can’t.

More than anything, I just wish I wasn’t being charged a fee for financial advice I don’t receive.