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The Investment and Financial Services Association’s (IFSA’s) new charter on superannuation to be released today will include recommendations regarding the promotion of superannuation returns and canvass issues relating to daily unit pricing and asset valuations, in addition to the introduction of a new standard relating to fees and commissions within superannuation funds.
IFSA chief executive Richard Gilbert said while the lion’s share of the attention would be directed towards the association’s new stance on the structure and disclosure of fees within superannuation, the charter will also include a host of other recommendations. Along with issues relating to daily unit pricing and asset valuations, IFSA will seek to increase the level of regulation around the promotion of superannuation returns by some funds.
“There are recommendations on the use of 40-year projections of benefits in advertising, which we think is a very unfortunate practice and it needs to be regulated better,” Gilbert said.
“But we think any trustee of a super fund that is using those particular techniques needs to examine their practice.”
But Gilbert said the priority of the charter was to “once and for all clear up the issues around advice and the payment for advice in the superannuation product”.
From the middle of next year the retail superannuation funds and investment managers who make up the membership of IFSA will move into a new era for investment product fees and advice.
Gilbert said the recommendation will form part of the association’s standards and “will require products and the disclosure of products to be in a certain form so as to ensure there is a structural separation of advice and fees” within superannuation products.
Gilbert said following the implementation of the new standard, some financial planners may wish to charge a fixed dollar cost for advice while others would choose to implement an asset-based percentage based fee. Gilbert said anybody suggesting that “we should outlaw asset-based fees … should go back and look at economics 101”.
Gilbert said to do so would represent “economic stupidity”.
“Why I say that is an adviser with a client with a million dollars assumes a lot more risk than [an adviser with] a client with $10,000. And that risk costs,” Gilbert said.
“It costs money when you go to [the Financial Ombudsman Service]; it costs money with your liability insurance,” Gilbert said.
“Clearly, the more money you have in the market the more you stand to lose. And the adviser must protect their base.”
Gilbert said IFSA had canvassed its members broadly on the plan, and the association had solidarity on the issue and “a uniformity of purpose and outcome”.
The chief executive of the Association of Superannuation Funds of Australia (ASFA), Pauline Vamos, welcomed the move.
“We’d like to congratulate IFSA. Clearly it is important that members of super funds get access to advice, where the payment is disconnected from the product sale,” Vamos said.
She said the move would “enable financial advisers to develop specific services, to provide accessible quick advice on a lot of the one-issue guidance that a lot of fund members need”.
In regards to the maintenance of asset-based fees, Vamos said the industry “must continually strive” to “ensure that members understand what they’re paying for, and what they are paying for is delivering the value they expect”.
“But there must be a clear connection between what you pay for and what is being delivered,” Vamos said.
– with Benjamin Levy
