If financial planners were ardent students of modern military history they might liken events surrounding the Federal Government’s endorsement of intra-fund advice to Nazi Germany’s annexation of Austria and its later occupation of Czechoslovakia.
If the financial planning industry is deemed to be in conflict with the industry funds then such parallels are apt. The industry funds have won a major victory on the intra-fund advice front and some important territory has been annexed. They have done so because they have always clearly understood that the alliances formed around retail financial services were conflicted and therefore fractured.
Just as Britain and France did no more than talk about resisting Germany’s march into Austria and then Czechoslovakia, so too did the Investment and Financial Services Association (IFSA) and the Association of Superannuation Funds of Australia (ASFA) do little to oppose the validation of the new intra-fund advice regime.
The positioning of IFSA and ASFA saw the financial planning industry convincingly out-flanked. Ground has been lost that will not soon be recovered.
The bulk of financial advice in Australia originates from or relates to superannuation, therefore those managing superannuation funds — be they banks, insurance companies or industry funds — hold the trump cards.
In similar fashion to the way major international airlines need domestic ‘feeder’ airlines to keep them viable, so too do financial advisory firms.
While banks and insurers seek to direct fund members to aligned planners, non-aligned planning groups have been able to rely on the flow-through of other super fund members.
That dynamic has clearly changed and, importantly, because the new intra-fund advice regime is being implemented by way of regulation rather than legislation, the planning industry cannot even rely on the issue being appropriately debated in the Federal Parliament.
What is more, the manner in which the regulations will be policed will be heavily reliant on those within the Australian Securities and Investments Commission (ASIC) — a regulator the resources of which are already being stretched thin by other issues.
This begs the question of whether, if financial planners are to be subject to a shadow shopping exercise by ASIC, superannuation funds will be similarly scrutinised.
If the implications of the Government’s approach to intra-fund advice were simply that superannuation funds are now better able to provide basic and affordable advice to their members about superannuation products and investment options, then little would have changed.
Irrespective of their willingness to do so, superannuation funds were always capable of providing limited, product-specific advice.
However, ASIC’s Regulatory Guide 200 takes that capacity a quantum leap further and enables them to provide broader albeit ‘limited’ advice outside of the same regulatory constraints imposed on planners.
An angry chief executive of the Financial Planning Association, Jo-Anne Bloch, put it succinctly when she said: “We simply cannot understand why trustees are able to now provide advice without a reasonable basis, and therefore escape criminal sanction, simply because the advice relates to a few scenarios within a superannuation fund”.
The regulatory changes have arguably given rise to a two-tier financial advice regime and in doing so must fundamentally alter the market for financial planning services in Australia. Will it make the provision of financial advice cheaper and more accessible? Yes. Will it ensure that all consumers are adequately and equally protected? Arguably not.
To understand how the financial planning landscape has been changed, it is worth reading ASIC’s Regulatory Guide 200 and noting the regulator’s admonition to superannuation fund trustees that: “In general, you can only provide personal advice to members about their existing interest in a fund (including insurance) if you hold an AFS licence authorising you to give personal advice about super or are the authorised representative of an appropriately authorised licensee”.
“If you are a super trustee giving such personal advice to members, you can choose to either:
- comply with the ‘suitability rule’ in s 945A; or
- rely on our class order relief in [CO 09/210] if you are eligible. You must comply with one or the other.
“If you provide personal advice about a member’s existing interest in a fund under our relief, you must clearly communicate to the member the scope of the advice that they are getting from you, and that you will not be considering any other products, arrangements or issues. This will help the member understand what advice they are getting and ensure there is no misunderstanding about what they are, and are not, being advised on.”
The ASIC guide continued: “Our relief does not extend to advice on products, arrangements or issues outside a member’s existing interest in a fund. If you give advice on these matters, even if that advice also covers issues about the member’s existing interest in a fund, you cannot rely on our relief and must comply with s 945A.
“If you are not trained or authorised to advise on these matters, you must tell the member that you cannot provide this advice and you may refer them to an adviser who can give personal advice about the products, arrangements or issues.”
It has not escaped the attention of the financial planning industry that the degree to which advice within superannuation adheres to the letter of the regulations will be a reflection of the attention ultimately paid by the regulator.
