Hayne erred on intrafund and MySuper

6 March 2020

The problem with the Government’s approach to implementing the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is that, on the available evidence, it has failed to pay enough heed to either practicality or industry history.

As an example, if those advising the Treasurer, Josh Frydenberg, had taken the time to consider the history and workings of Australia’s MySuper and intrafund advice regimes then they may have stopped short of virtually rubber-stamping the recommendation of the Royal Commissioner, Kenneth Hayne, that “deduction of any advice fee (other than for intra-fund advice) from a MySuper account should be prohibited”.

If those advising Frydenberg had then looked to examine the proceedings of the Parliamentary Joint Committee on Corporations and Financial Services and evidence given by Australian Securities and Investments Commission (ASIC) commissioner, Danielle Press, they would have discovered that the regulator regards intra-fund advice as entailing the delivery of personal advice.

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In other words, Hayne misunderstood intrafund advice and, in doing so, it is arguable that his recommendation pertaining to banning advice fees in MySuper warrants a revisit on the part of the Treasury rather than the rubber-stamping that currently seems likely to occur.

That is why both the Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) have been right to so publicly urge that the Government reconsider the whole issue of MySuper and advice fees.

It is also clear that Hayne failed to familiarise himself with the history of MySuper, the manner in which it grew out of the so-called Cooper Review and the rather cowardly policy acknowledgement that a low-cost product should be developed because some superannuation fund members were simply unlikely to ever engage in their superannuation.

The result was that under the portfolio direction of former Labor financial services minister, Bill Shorten, a whole raft of existing default funds were converted to MySuper products.

Yes, MySuper does represent a low-cost default option for those who are largely disengaged with their superannuation, but that does not mean that all members of MySuper options are disengaged or that they do not want to access financial advice.

The reality that Hayne failed to recognise was that his recommendation stood to place members of MySuper options at a disadvantage to their counterparts who are members of the same fund but are in choice options and he did so with the somewhat blithe observation that “it is difficult to imagine circumstances in which a member would require financial advice about their MySuper account. If a member wants financial advice, the cost of that advice should be charged to and paid by the member directly”.

It is a statement which might sound reasonable to a lawyer with a significant six figure income but paying for advice outside of superannuation is a far more daunting prospect for a MySuper member of far more modest financial means.

The Government would do well to consider the responses of the financial planning industry to its legislative approach to implementing the Royal Commission recommendations and accept that Hayne was not without flaw and some of those flaws have become more than obvious.

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MySuper offerings were introduced because of the enormous fees being charged by fund managers particularly on personal superannuation accounts which were being eroded by poor performance and by none or little services by fund managers.

How easily the past is forgotten and then distorted by editorials such as this one. Both the for-profit and not-for-profit superannuation managers did their utmost to reduce the advent of MySuper schemes and it was they that gave the mess as stated in this editorial.

The basis for the Govt imposing a transfer of a clients account to a MySuper option was to label the member " disengaged " from their superannuation if they had not made an investment choice selection away from the funds default investment option.
This was ridiculous and a blatant attempt to quarantine business away from financial advisers who were engaged with clients who had no real need to diversify away from a default investment option and who receiving ongoing advice.
There is nothing more clear in regard to this whole process than a Govt hell bent on controlling the superannuation space.
The ridiculous level of control is bordering on superannuation dictatorship measures.
The ridiculous notion that a member cannot or will not be able to make a decision to allow advice fees in relation to their MySuper account to be deducted from their account either on a once-off or ongoing basis is creating a situation where some members will be allowed to, whilst others will not.
MySuper members still require guidance and personal advice and to even imply that they cannot make their own educated determination who they pay for advice and how they pay for it is bordering on control levels that are totally unacceptable.
MySuper is not some special product or space that cannot be touched, it is simply a low cost option the Govt forced down their necks because they wanted to cut the advisers off at the knees.
I didn't think we lived in a communist country, but there are signs of overarching control that are becoming much more visible than ever before.
And this is from a Liberal Govt....Scott Morrison's colours and ideological position on many things are starting to seep through the walls and it smacks a little like a Hill Song gathering with best mate Brian Houston leading the charge telling people how they should be leading their life.

It was an obvious attempt to stop the rip off fees upon people who would not be advantaged by any financial advice whether honest or not.

Of course the Federal Government (of any colour) controls the superannuation space - how could you think otherwise? Think about which body sets the taxation regime for Australian citizens and their superannuation and pension.

You obviously don't remember but it was the retail fund managers which wanted to break the automatic choice of industry funds for employees and new employees in particular.

Taking a strictly business view, financial advice firms are losing money if they try and engage 'disengaged' people as the cost of servicing them is higher than any benefit received by a financial advice business. A hard truth but true.

I have said this before but financial advisors need to demonstrate the value and need for good financial advice to citizens, but all that is seen and heard are complaints about unfair Royal Commissions, Coalition Government, etc, etc. Not seen anything stating the essential and vital role of financial advisors in today's complicated taxation, superannuation, etc by the two professional bodies (which should be abolished for being useless) nor by any financial advice professions.

Good ultimate paragraph.

Both Bill Shorten's and Kenneth Hayne's recommendations were based on assumptions.
When does a Govt or someone with the level of power and influence provided to Hayne recommend potentially detrimental changes to individual superannuation members based on assumptions ?
The Govt does not have the right to quarantine one group of superannuation members who were transitioned to a MySuper product as to not have a choice as to how they decide to pay for advice and services.
Effectively, the proposal to disallow advice fees to be paid from a MySuper account is disadvantaging the very group they sought to " protect" from the nasty financial adviser !
At the very basis of all this bullshit regulation is the call for the enhanced consumer outcomes.
It will parroted time after time after time from left wing consumer groups and left wing lawyers and at the end of the day, they are removing a simple right to have a choice and elect to pay for advice as other superannuation members may be able to.
It is effectively treating these members as a second class super members who need to be "managed " by the Govt.

Yes, it is very convenient that Industry Super ends up with all these member that only they can provide General Advice to all paid for by Intra Fund Advice Fees - what a stitch-up. Such bad policy, in the end, will lead to truly bad outcomes - but it will take time. Just a shame policy makers are not held personally responsible - that I would love to see.

I have to point out that Bill Shorten is not in the Federal Government and so is not in the position to make government policy. It is the Coalition that is the Federal Government. It was pressure by three Coalition backbenchers who forced M&J to hold the Royal Commission. It is the Coalition Government that is implementing the recommendations of the Royal Commission.

Because Australian superannuation, pensions, taxation, retirement are instigated by Federal Government Acts and regulations, then of course the Federal Government has the 'right' to set all or any conditions and policies in respect to superannuation. Superannuation is not some inalienable and self-evident right of citizens (not in John Locke's list).

Recommendation: That the financial advisors' exam include basic political science as an extra subject area to be tested. Add basic macroeconomics as well.

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