AIOFP backs SCA’s super advice views ‘conceptually’, differs on ‘implementation’

In an email to Financial Services Minister Daniel Mulino, Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston said SCA’s criticisms of superannuation funds being able to provide retirement advice were well founded, but their solutions are flawed.

“We agree broadly and conceptually with SCA’s views but we diverge on its implementation model,” Johnston said.

“Introducing mandatory minimum requirements for retirement products and extending the annual performance test to account-based products we concur with. We also like the idea of an independent retirement product comparison tool and the independent one-stop shop advice service UK model for consumers, but the key questions are, who is going to fund them and who is going to deliver the advice.”

In its submission to the latest instalment of Delivering Better Financial Outcomes reforms, SCA said it would only support the reforms on the condition that the government introduces a broader package of necessary reforms to safeguard Australia’s retirement framework.

“Australia’s retirement income system is not delivering an adequate standard of living for all retirees,” it said.

Among its strongest positions is that what the bill allows essentially boils down to product sales, not financial advice.

Arguing that the proposal goes considerably beyond permitting “simple and cost-effective advice about retirement”, SCA said it permits advice about retirement products.

“Because most funds only offer one retirement product, this reform just rubber stamps funds using the intrafund advice model to drive product sales and trap members in poorly performing products,” the submission said.

“Advice about retirement products is only helpful if members have meaningful choice among a range of high-quality products – but that is not the current reality.”

As Johnston noted, the consumer body also recommended the government establish an “independent, one-stop-shop service” that would provide free advice and guidance when they need it.

According to SCA, this would be an improvement over both the “free” advice from super funds, which is “conflicted, of limited helpfulness to fund members and not generally trusted”, as well as “unaffordable and out of reach” independent, professional financial advice.

Johnston, however, argued that the very concept of a free or subsidised service is “fundamentally flawed”.

“Society needs to move away from this ’welfare’ mentality. We also think the overreach of government into market regulation and pricing needs to be curtailed,” he said.

“SCA correctly points out that superannuation funds have morphed into the highly conflicted vertically integrated structures like the pre-royal commission banking model where they have in-house advisers giving advice to members about their own funds’ performance and suitability.

“This structure is also criticised for being a ’fee for no service’ outcome where a small fraction of members utilise the service but it is unfairly funded by all members.”

The AIOFP outlined its own version of the service that super funds should be allowed to provide, noting the need to “keep the concept simple”:

• All institutions/super funds are permitted to have internally trained product information officers (PIO) who deliver product information to consumers/members about their own products.
• This information can also contain basic Centrelink calculations.
• PIOs are not considered financial advisers, they don’t have to be licensed or have formal qualifications, this will address the immediate need for information assistance to consumers/members.
• For any advice-related information, the PIO refers the consumer to a panel of independent financial advisers organised by the institution/super fund to select from.
• These services should be paid for by the consumer on a fee-for-service basis. The cost of advice will be dramatically reduced if the CSLR and unnecessary compliance issues are addressed.
• Stay away from the term advice as it over-complicates and confuses matters, product information best describes the PIO duties and parameters.

Johnston also pushed for a panel of research houses that would rate every new PDS before it hits the market, funded through the ASIC adviser levy.

“This will also address a fundamental market conflict of product manufacturers ’shopping around’ for a favourable rating from a research house – advisers/consumers should be the only stakeholder funding research, anything else is conflicted,” he added.

“This adviser-funded research panel can then provide the independent product ratings and advice strategy information to the proposed independent one-stop shop advice service without government funding. This will also compliment the ASIC adviser levy funding the product independent product comparison tool.”