The Association of Financial Advisers (AFA) has continued to rail against the findings of the Royal Commission pointing out that it had failed to understand the degree to which intra-fund advice is conflicted.
The AFA’s general manger, policy and professionalism, Phil Anderson has written a paper in which he laments the degree to which the Commissioner, Kenneth Hayne, failed to recognise the value of advice while failing to understand the workings of intra-fund advice.
Anderson suggested that all advisers should be concerned about the way financial advice had been described and treated in the Royal Commission final report, even those who thought the Royal Commission represented a great opportunity to deliver fundamental change and help make financial advice a genuine profession.
“There can be no doubt that what the Royal Commission has said about financial advice, both fair and unfair will have a long-term impact,” Anderson wrote.
“Industry Super Australia (ISA) asked for much in this process, including the removal of grandfathered commissions, life insurance commissions, non-monetary benefits, and ongoing fees from superannuation accounts (or otherwise move to annual renewal),” Anderson wrote.
“One thing that they called for to be retained was intra-fund advice, and that is exactly what they got (again),” he claimed.
“We are not arguing for the banning of intra-fund advice, however we do appreciate that it has the ultimate conflict of interest in that it can only involve a recommendation with respect to the fund that the adviser works for,” Anderson wrote
Further he pointed out that the Australian Securities and Investments Commission (ASIC) had acknowledged that it had not yet looked at industry fund advice adding, “so it is not surprising that there were no issues highlighted at this stage”.
“It is interesting to hear that following the finalisation of the Royal Commission, the industry fund movement is now pushing for a broader definition of intra-fund advice,” Anderson said.
"One further point to note on this statement, is that the Commissioner is wrong again, and intra-fund advice does include personal advice,” he wrote.
Comments
All the AFA do is criticise. When will they develop some solutions, services and tools to help their members rather than lamenting what has already happened?
Did you attend the AFA Roadshow? All I can say is that Phil Anderson has shown leadership in this debate and has asked some valid questions about some of the Royal Commission recommendations, including intended and unintended consequences. At least he hasn't engaged in the "groupthink" of other media 'commentators' who appear to have rolled over already.
Great to hear the AFA speaking their mind and supporting their members. Now if only Dante De Gori of the FPA would man up and do the same, to stand up for the profession he represents rather than appeasing all the Industry Fund members of the FPA. Industry Funds continue to not look beyond their own products for members while also classifying their investments different to the whole profession for their returns to be considered superior to anyone else. Industry funds need to be scrutinised more than anyone given their mass of superannuation assets and they way they operate in questionable or for members, rather being for their preferred political beliefs!
The FPA does not represent individual advisers/planners. They've moved on and they get funding now mostly from product manufacturers. Those product manufacturers (CBA,AMP) have made it compulsory for their advisers to join and they even pay for their fees. So they work for those firms and not you. The FPA is not the same body, it's more about representing product manufacturers and not advisers. Professional associations don't get payments from these firms because they recognize it's a conflict of interest. FPA members not working for AMP or CBA (because it's compulsory to join) should look to finding another professional association.
Good on the AFA for pointing out the misguided views of Kenny and his band of merry people... when are the FPA going to stand up for their members? Intra-fund advice is the most conflicted and results in bad outcomes for clients. The industry fund "advisers" don't consider anything other than the fund the clients already in... no Centrelink impacts, no tax consideration, no risk profile assessment and inappropriate AA... I've had a number of clients come to see me after meeting with one of these industry fund and they are amazed and what they hadn't been advised on. It's time this carve out was removed and they be held to the same standard as the rest of the industry.
As a side note, will they fall under the non-independence disclosure as the rest of the industry?
Interesting to see the blurring within the comments between Industry Fund Planners and Intra-Fund Advice. I agree that Intra-Fund advice is, in fact, Financial Advice. However, they don’t recommend product, they recommend contribution amounts, asset allocation (risk profiling), level of insurance and withdraws. It’s a highly restricted offering.
Many Industry Funds have separate offerings, many have Intra-Fund Planners (Limited Scope), and Comprehensive Planners (Open Scope), and should the Intra-Fund Planner uncover additional needs that can’t be satisfied within their scope, they are referred to a Comp Planner (as they should under the Law). Is this issue around best interest for Comp Planners that are employed by an Industry/Super Fund, or that Intra-Fund advice even exists. Given the increasing cost to serve in the Comp space, I believe there is a place for the Intra-Fund offering, but is the scope too limited?
Ok Matt, let's follow your logic. You seem to be arguing that because of the cost of full advice via a planner, inter fund advice is ok because it is not recommending a product. So why cant an Adviser do this? Why cant an adviser do this by charging everyone a fee for it? Why cant an adviser do it and not have the liability of it?
Inter fund advice is simply a business model which is far more competitive than a distribution model of advice that was the retail world. Expect more inter fund business models and less financial planning. And your comment that inter fund advice does not include product advice seems unrealistic considering industry funds have many new members joining all the time - and with the help of the Trustee's helpful call center staff.
Ok Mr What?? Let's break this down a little for you, may be in easier to understand terms.
Firstly, it's 'Intra' not 'Inter', and Secondly, an Intra-Fund Planner is a fully licenced Planner under the eyes of the law (same as a Comp Planner).
Let's answer your questions -
- "You seem to be arguing that because of the cost of full advice via a planner, inter fund advice is ok because it is not recommending a product. So why can't an Adviser do this?" - The answer is, they can!
- "Why can't an adviser do this by charging everyone a fee for it?" - The answer is, they can!
- "Why can't an adviser do it and not have the liability of it?" - Not sure what world of Advice you're practicing in, but an Adviser is liable for all advice recommended, so to answer your question - Intra-Fund Planners ARE liable, as much as a Comp Planner would be (refer to my 'secondly' point above). The question to you, would you be as unethical as to charge a client for the same service they are able to receive for free (as long as the advice is compliant and in their best interest)? Because, as mentioned, a Comp Planner can do everything an Intra-Fund Planner can do.... but would you?
So to continue, most super funds provide an Intra-Fund advice offering, not because it's competitive, but more-so because it's purely contained to the product the client is in (as consolidation, centrelink etc isn't in scope), therefore, the Planner isn't recommending a product, just advice pertaining to the product... so I think you're getting yourself a little confused as to 'business models', as the Trustee is providing a service to their members, and why wouldn't they use the thousands of interactions between call centre staff and members to help them identify how they can help their member base?
Thank you for your comments Matt. The points I am trying to make Matt seem to miss you so I will try and explain it a little further.
Why can't advisers charge for it you said they can. Yes, we are able to charge (at present) but only to the member that is receiving the service. We are not able to charge the cost of that advice/service to other members. If this is not the biggest fee for no service issue in town then please explain how all the members not using the service would not be better off having the fees charged to their account refunded. If they want the service and the service is so valuable, then they can pay for the service directly - by agreement.
Not sure how advice can be delivered under intra fund model and be liable for it in the situation where say assets allocation is discussed - how do you get a member in Host Plus "Balanced" which is essentially 90% plus growth without a risk profile assessment and determining the clients goals. If Host Plus Balanced has a large downturn, will the person on the end of the phone be liable? You say yes. In my world, any recommendation to switch investment options is an ROA at best, but an SOA before that. No such costs to produce under Intra Fund advice.
It is a business model and I suspect you will see this demonstrated when AMP and the Banks (who ever remains) use this as their product distribution model. I can see it now, AMP consolidate all old products into one simple my super offer, take all property and infrastructure assets off market and start with a unit price of 1.00, ramp up the asset allocation to 90% and play with the definitions. If the Industry Funds want to try and get the best returns, AMP would have a lot of room to play with the valuation of the unlisted assets and Industry Funds have already cooked their valuations so AMP could simply push the Industry Funds to the limit. Presto, great returns, start the advertising and get a couple of floors full of call center staff to provide Intra fund advice - and watch the money roll in.
If Intra Fund advice is not conflicted advice and not fee for no service, then you might be right in saying I don't understand.
I'm an AFA member and wish they would stop complaining about things that won't change. You can't change what has been put in writing in the Royal Commission report, there's no point in wasting time pointing out that Hayne's ideas are flawed and how he made technical errors in his report. Just move on and start lobbying in a positive way so that the Government might actually want to hear what you have to say. The mortgage broking association got it right, band together, get it in the media with a really clear message.
The AFA are still banging on about grandfathered commissions. Forget about them, FOFA came in back in 2013, if you've still got grandfathered commissions in your business 6 years later, you've got 18 months to review those clients and shift them to a fee for service arrangement. Then comes the argument...what about people who have purchased a book based on a multiple of recurring grandfathered commissions? guess what, worst business decision you've ever made, but you still have 18 months to shift them to a fee for service arrangement, if it was your intention to leave them in their current product and simply collect the trail, then you're the type of Adviser we all want out of the industry anyway.
Why is the AFA arguing these issues. The Government will just look at them and see how they're still hanging on to the past, unwilling to accept change, and not listen to them.
They need to get together with the FPA, hopefully merge into one single association, and start lobbying now to defend life insurance commissions at a 60/20 level. That is the next battleground, not grandfathered trails.
On a side note, I don't normally comment on political issues, but have a look at Colonial First State's latest technical update. I wasn't aware of all of the proposals the Labour party are putting forward regarding super and tax. It's a real eye opener -
- reducing the non-concessional cap to $75k
- re-introducing the 10% test for concessional contributions, meaning employees go back to only being able to salary sacrifice to get a deduction
- removal of the concessional cap carry forward rule
- reducing the Div 293 tax threshold to again to $200k
- Halving the CGT discount on the sale of any asset after 12 months to 25%, shares included
- Limiting negative gearing to new house purchases
- imposing a maximum $3k cap on deductions for the cost of managing tax affairs
But the biggest one of all for anyone who is running their own business - imposing a minimum 30% tax on distributions from a family trust. So you income split with your partner or family member, they will pay a minimum 30% rate on that income, regardless of whether they have other income or not.
That would have to be the most negative, anti-growth, anti-super, set of proposals I have ever seen.
How anyone could vote for that I have no idea.
Good on you Phil Anderson for pointing out the flaws in Hayne's understanding. Government, regulators, and the media should not be so readily accepting of recommendations Hayne has made based on clearly inaccurate and incomplete information.
The one thing you forgot to mention about Intra fund advice Phil is that for 95% of members it involves a fee for no service.
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