Calls to expand the scope of intra-fund advice to include retirement planning come from a good place but they are fraught with danger.
According to CoreData, only one in four Australians get financial advice, despite evidence that those who do are better off as a result.
The government, as part of the Quality of Advice Review (QAR), is looking for solutions to make advice more accessible and affordable.
The QAR Issues Paper proposes a series of questions around expanding the scope of intra-fund advice and changing the regulatory framework to encourage superannuation trustees to actively engage members in relation to retirement issues.
This coincides with the introduction of the government’s Retirement Income Covenant on 1 July 2022, which places an obligation on super funds to deliver retirement income strategies and “innovate to improve outcomes for their members in retirement”.
Professional financial advisers will play an important role but it won’t be through the delivery of intra-fund advice.
There is no question that intra-fund advice is an integral part of the advice accessibility and affordability puzzle. It allows super trustees to cover the cost of general advice on simple product-related matters.
Realistically, it is the only information and advice many members will ever get.
But retirement planning is not simple.
It is far more complex than discussing a fund’s investment options and insurance arrangements, or talking to a member about increasing contributions.
Retirement planning is complex and deeply personal. It goes far beyond the scope of intra-fund advice.
Intra-fund advice is primarily general financial product information and the cost is borne by all the members of the fund. Where it gets personal, it is always limited.
The Australian Securities and Investments Commission (ASIC) describes intra-fund advice as “not a type of advice” but rather a “cross-charging mechanism”.
Before making any changes to the intra-fund rules, the government must first understand what retirement planning entails and the potential consequences of getting it wrong.
It is not just about starting a retirement income pension from the member’s accumulated super. There needs to be an understanding of how this will impact the member’s social security entitlements. If coupled-up, their partner’s situation needs to be considered and included as part of the advice. It is impossible to plan for one partner alone.
A member may be financially better off putting some money into an annuity because, under the social security assets test, only a portion of the purchase price of an annuity income stream counts as an asset. This may help a member qualify for benefits like the Commonwealth Seniors Health Card and the Pensioner Concession Card, which provides a range of discounts on things like medicine, health care, utilities and travel.
Assets can also be sheltered in a younger partner’s name until they are eligible for the age pension.
In retirement, when people are not earning a regular salary and have a finite pool of money to live off, seemingly small savings can make an enormous difference; particularly relating to health care costs.
When it comes to retirement, there are so many strategies for minimising tax and maximising income.
For members with complex needs, such as those who own more than one property, professional advice can be extremely valuable.
Estate planning is another important consideration that goes hand-in-hand with retirement planning.
The limitations of intra-fund advice mean that it is primarily suited for super fund members in the accumulation phase of life with relatively simple needs.
However, contrary to popular belief, many industry super fund members are very sophisticated and wealthy. Over the past 20-30 years, they have accumulated considerable wealth, including property.
People commonly believe the best retirement plan is to own three or four properties and live off their rental income but, in many instances, it’s not. They underestimate the stress of managing property and paying rates, maintenance, insurance, agency fees and land tax. They miss out on many of the tax benefits on offer.
These critical issues can’t be addressed by an intra-fund proposition. Even if the scope of intra-fund advice is expanded, it’s still too far a leap to make.
With the product manufacturing institutions largely out of personal advice, it’s time for financial advisers and industry super funds to collaborate to ensure members get access to high-quality holistic advice.
Recognising that there is an inherent conflict in super funds providing advice on their own products, and keen to avoid the same mistakes as the vertically integrated institutions, super funds should work with independent financial advisers to help members adequately plan for a comfortable retirement.
Gareth Hall, CEO and senior financial adviser, Lifestyle Financial Services
If real estate agents are still charging over 2% commission for a no advice ‘sale’, why is it that Authorised Financial Advisers are being punished / questioned / challenged over charging a bona fide $3,300 ongoing advice fee??? when they are delivering a professional service for clients with a significant need?
I don’t disagree with the sentiment here Gareth, but paying many thousands of dollars is out of the question for most people for this type of service.
Most people simply do not have the wealth or need for sophisticated arrangements (and/or wouldn’t see the value). I would suggest that expanding intrafund advice to the areas you mentioned would be a great way to get more advice to more people, giving them some simple rules, to set them up for a better retirement (ie. include some common other assets, home ownership, age pension and a spouse’s situation within the scope of intrafund).
Some of the other comments made suggest that this is an industry fund versus adviser issue, I am not sure this is the case. There is enough demand (or need) for more sophisticated advice in the market and I am not sure that’s where many (any) industry funds wish to play.
Hi Brendan
I think we agree with each other that advice at retirement is important and needs to be affordable. As an adviser, I can attest to how much work is involved in thoroughly investigating a person’s requirements at retirement, and I don’t believe this depth of advice can legitimately be charged at a plan admin fee level (cross-subsidised across the member base). Of course, there will be exceptions for people with very simple situations and small account balances.
I also agree it is not an industry fund versus adviser issue. I think the more we all work together and the more the advice process is simplified to reduce costs the better the outcome for consumers.
Generally, intra-fund advice refers to limited or scaled personal advice that a superannuation trustee can provide to a member about their superannuation account without an additional fee being charged to the individual member. If the partner’s situation is included it can clearly not be intrafund advice, unless both partners happen to be in the same fund.
Thanks for the article, Gareth. I see it slightly differently – expanded intrafund advice can be a solution that fits a member’s specific and limited requirements at certain points in their lifetime and opens the door to them receiving comprehensive advice down the track.
Seeking and acting on advice should be normalised at every stage of the member journey. Expanded intrafund advice can fill the gap for clients who want help but are unable/unwilling to pay for comprehensive advice, and are unattractive to the best planners given their relatively low net worth in earlier years.
A member who’s had a positive intrafund experience is more likely to seek comprehensive independent advice at the right time in their future, compared to, for example, a member who has sought a comprehensive solution too early and been put off by cost or lack of availability.
Hi Tom B.
I agree that there is an important place for intrafund advice, however, I believe that transferring superannuation assets from the accumulation phase to the pension phase should, in most cases, not be done without a thorough investigation of the person’s circumstances, and this must include the circumstances of their partner if they have one.
This is partly due to the interaction of a couple’s income and assets with the age pension system. They could potentially miss out on benefits if this is not thoroughly considered.
People just don’t know what they don’t know and, by its nature, intrafund advice will not and can not investigate their situation thoroughly or provide advice on the fund members’ entire situation.
Standard 6 of the Adviser Code of Ethics states that advisers must ‘take into account the broad effects arising from the client acting on your advice and actively consider the client’s broader, long-term interests and likely circumstances’. Intrafund advice will not address this. It will also not provide a comparison of different product fees, features & benefits, or investment performance.
Having worked providing Workplace Financial Advice for over 30 years I am very aware of the knowledge gaps many people have when it comes to superannuation, age pensions, and their general entitlements.
Retirement planning is complex and there are many issues to consider including Estate Planning issues. I believe it needs to, in most cases, be provided only in the context of full and comprehensive financial advice.
Holistic advice is the minimum requirement not only for the member but also their partner, including both financial advice and longevity planning.
The push to expand intrafund advice is designed purely to ring fence member money in the industry funds. That’s what the unions, Labor Party and Industry funds want. All talk is smoke and mirrors. The Labor Party will push for it and the Liberals will sell us out as they have done so in the past. We will return to conflicted vertical integrated models with industry funds the only players left.
Expanding intra-fund “advice” is designed to drill retail advisers off the face of the earth. Nothing more, nothing less.
I don’t think the government’s view of financial planning has evolved from thinking all we do is try to rollover industry super funds into licensee owned products
Let’s say it straight. Calling someone at your Union Super fund and getting advice on what investment option to invest in is not Financial Planning or Financial Advice. It’s very limited advice on a product. We should not be creating carve outs for those sweatshops to flog more products. Carve outs should be given to legitimate full advice Advisers. Full ongoing advice needs the carve outs.
Intra fund is personal advice and should be fee for service when used by the member. End of story other wise we are just talking about another fee for no service