Are intra-fund advisers really tied agents?

Salaried advisers employed by industry funds to provide intra-fund advice have been likened to the old ‘tied agents’ who were a part of the industry nearly 30 years ago by senior adviser at Western Australian financial services firm, Roxburgh Securities, Steve Blizard.

Blizard has published an analysis of the current state of play with respect to intra-fund advice and has questioned whether members of some superannuation funds are aware they might be paying for advice they are not actually receiving.

Blizard has pointed to proposals put by the Australian Securities and Investments Commission (ASIC) that intra-fund advice costs be included in disclosure of administration fees and the fact that a number of major industry superannuation funds have issued new Financial Services Guides (FSGs).

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He said that an examination of those FSGs showed that a number of funds could pay performance bonuses to their advisers, on top of their salaries, from administration membership fees paid by fund members.

Blizard said that with the growing shift to intra-fund advice, concern was being expressed that the large institutions, including the Industry Super Funds were creating an entirely new AMP tied agency structure that might not always put the client’s interests first.

“For example, if a retiree with a large super fund was influenced by the intra-fund adviser to roll his funds into an Industry Fund, will this really meet their retirement goals, compared to investing in a self-managed fund with an investment allocation that outperformed that Industry Fund?” he asked.

“If the same retiree wanted to invest in a higher performing Industry Fund (not connected to the intra-fund adviser), would they decline to give advice to that investor? If a fund member found their group insurance premiums were far too expensive, would the intra-fund adviser be able to recommend lower cost personal insurance premiums elsewhere?

“Would the intra-fund adviser earn performance bonuses for redirecting that member elsewhere?”

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What about an industry fund rolling a member to their Account-Based Pension over the phone without providing any advice or product comparison?

Industry fund insurance is more expensive with way worse conditions for the client than retail risk insurance. How about the compare the pair??? - you are legally obligated to compare product alternatives if you an adviser but a telephone sales person in an industry fund can say and do what they like???

Well done Hayne you missed this and vertical integration of the banks.

Lets hope someone with some power takes notice of this, we have been banging on about this for years . How can a clients best interests be met when you scope out the whole super fund for example. Oh Joe only wanted to talk about investment allocations in the industry fund, he didn't want to know that there was a better suited super fund out there for him. Really?

Also Joe, a typical user of intra-fund advice, has a balance of about $75,000 and just wants some simple advice to ensure his investment option is appropriate for his needs. Alternatively, he could see Hang, who would provide a comprehensive financial plan, recommending Hang's favourite, better suited (cheaper, better performing..) super fund, with an up-front cost of a few
thousand dollars, or perhaps an ongoing service fee deducted from the fund's balance. Given that the balance is $75K, Joe isn't going to want to part with two grand for the advice, - and the ongoing would have to be a ridiculous percentage for Hang to cover the costs of the advice provided, and earn an income (which Hang is perfectly entitled to do).
Is Joe really Hang's target market? Is it worth Hang's while to pursue the typical user of an intra-fund advice service? Probably not. So why does Hang care so much? Isn't it a good thing that Joe receives investment choice advice from a qualified financial adviser, in writing, for a small fee or perhaps included in his admin fee (along with a wide range of services that Joe may or may not access)? Isn't Joe better off than he was before?
All Australian members of super funds should be able to access advice service to ensure they are getting and doing the best they can to maximise their retirement outcomes. Hang isn't going to look after Joe, but an intra-fund adviser linked to his super fund can.

If the service is so valuable, then simply charge a fee directly to the client - that way the client can decide of this service is of any value. Simply charging every member a fee and delivering advice to a few sounds like a lot of fees for no service and not in the best interest of the clients - and just because they are small clients does not help your argument - your argument has been had and lost.

So your issue is that “it’s not fair” that a super fund (retail or industry) can provide scaled advice services to members who would otherwise not receive any advice, and you can’t? Would you like to? Is there something that you are missing out on?
There are a lot of other product features and services bundled in admin fees that are not utilised by some members (eg speaking to the call centre, making investment switches) - is that fee fee for no service too?

Actually Ken, there is no problem with product sales and marketing, but call it what it is and don't ever include the word advice. Clients should know they are talking to an employee who is rewarded by keeping them in their product - the information the client is receiving may be in their best interests but that is certainly not the driver for the sales agent's recommendations. Clients should also be clear that their is no obligation for the call centre to consider their personal circumstances or objectives or alternative solutions, even those that would better suit the client. It is is simply product marketing information as per the tied sales agent system of the 70's and 80's. People who provide these services are not advisers and do not have any of the consumer protections that advisers have to adhere to. Renaming this service as 'Product Sales information' or 'Product marketing information' will make it much clearer for clients to understand the difference and the staff providing the information would be more accurately described as 'Marketeers' which is term that most clients will recognise and therefore understand the providers relationship with the product owner

This is correct. The big issue is that if you crunch the numbers on this growing band of "advisers" employed with bonuses with the Union Super Funds, the majority component of their income is sourced from Intra-Fund payments, not from invoicing. So we have this ridiculously unfair situation where these tied agents can be paid quite generous incomes without having to produce annual FDS & chase Opt-In notices, whereas their competiton do. This situation is simply untenable. It's either cease intra-fund payments to advisers, or get rid of Opt-Ins, which is probably the preferable situation. FDS, SoAs & annual reports make it very clear what a fund member is paying for advice, whereas it is still as clear as mud with intra-fund.

Maybe in your example, it would be better if ASIC allowed simple cost effective advice from non-aligned advisers, rather than conflicted advice from super fund advisers. We should be promoting cheap, cost effective advice (with changes to current compliance) rather than BS intra-fund advice designed to retain FUM.

ASIC should produce an online for that any licensed adviser can log into. You answer the questions prescribed on the ASIC form. It has a risk profile questionnaire. You record the answer / discussion about risk v reward. A simple retirement projection calculator (that ASIC set the assumptions for) Maybe an insurance needs analysis. IT could probably include the average ICR for similar funds and also historical returns. When it's completed a copy is emailed to ASIC, client, adviser, licensee and the fund. ASIC set a fee for this and when the fund gets it they implement the switch and remit the fee to the licensee. All parties can view the advice provided and we can easily add value / comfort to clients for this service. We can then have conversations about if / when it would be suitable to transition to full advice.
All general advice providers within products should also have to use the same form. Then ASIC can see how many members of a particular fund actually get advice, and how many are paying FFNS.
Actually doing this would be really simple.

I really hope this is said in Jest???? The government setting pricing??? When has this, in the history of all humanity, been a good thing. If we are going to this level then do away with ALL advisers and just go the government for financial advice.

Governments can't even set the cost of money with any reliability and the Soviets proved setting economic settings/prices/supply ultimately rips an economy apart.

On this arguement we should all just drive trabants cause we are all the same. Far out


You assume way too much Ken. It may suit your argumrnt but its not based on real life experience, or fact. They are just the same old motherhood statements. You dont know me or my business . Superannuation fund based advice is very conflicted, as its based on a product to start with, and given mostly by those that work for that product. My business is very much far removed from that. I support the separation of product and advice. This type of inhouse
scoped out advice also means clients miss out on a lot of opportunities, that is fact. If you cant see that, you must also be conflicted.

It's simple. If you are a registered financial adviser and are authorised to provide superannuation advice (or any other advice) then you SHOULD NOT be allowed to be employed by a product provider. This goes for banks (and AMP) as well as super funds. If non-aligned advisers could receive their advice fee from ANY product provider, of course they will always act in the best interest of the client (let's face it - increased compliance costs have made paying via product the only viable alternative for most clients). This will ensure that clients are placed in the best products, which will increase market competition and improve the quality of financial products. Also, advisers will provide strategies that are always in their clients best interest, rather than in the interest of product providers (for example, where a client is better off starting an annuity than an allocated pension). Unbelievable how this was missed by the Royal Commission - they didn't see the forest for the trees.

"Industry" funds = Union funds = AMP 2.0

Why would anyone think they can make money out of a $75,000 super fund and suggest it's in the clients best interests.
Someone with that small amount is probably not making a significant contribution in the first place
If you charge a fee of say $1500 + GST, the client is already behind 2.0% + on his portfolio. If it's the same figure for ongoing advice, how much advice is worth $1500 p.a. in a low interest, volatile market place.
Plus as an adviser you need to do ongoing reviews, Opt ins, FDS etc.
There's about $500 worth of costs associated with your fees.
Why would anyone waste their time on such a small amount of FUM..... unless you were desperate.
Either way it would not meet the client best interest test.

It's easily fixed. Given that Commissioner Hayne has recommended this, just update the regulations so that members being charged for intra-fund advice through their administration fees simply sign an annual Opt-In notification that they wish to keep paying their fund's tied sales advisers (for advice they aren't receiving). No annual opt in nomination returned to UniSuper or AusSuper, & then the member (who then effectively has opted out of advice) automatically receives a full admin fee discount. I'm happy to even educate those members on the benefits of why they shouldn't return it. Fairs fair, if the Union Super funds, Haynes & all their minions in the media are so hell bent on applying the Opt In legislation to all the other non-aligned advisers in the marketplace. It's all in, or it's all out. You can't have it both ways.

Well said, if only FPA & AFA and even retail funds were all aligned in their message to the politicians, the sensible aspects such as you suggest may have a chance to be put in place!

What would ASIC know about this anyway...... they have never audited any of the Industry Super Funds in depth. A disgrace nonetheless.

Agree 100% firmly believe an investigation into ASIC on why this multi-billion dollar area of Aust retirement wealth hasn't been properly regulated or looked into by ASIC needs to be done and any present or past ASIC officers (I have personal suspicions on Kell & Medcraft) that is found to be either negligent or corrupt faces the same harsh financial penalties and forfeiture of capital that a FP business owner would.

On the 1/1/2020 these advisers will no longer be able to deal with clients. Please refer to the FASEA code of Ethics Standard 3 "You must not advise, refer or act in any other manner where you have a conflict of Interest or duty".

the problem is that ASIC (or Haynes) conveniently doesn't view tied agency salaried advisers as conflicted, in part because they believe that the client should realise that the inherent bias is obvious. This issue will not go away. It must be resolved one way or another.

Great article and congratulations to both the FP author and MM for publishing. It is extremely disheartening that mainstream media doesn't run these stories or detail the inequities in financial service provision regulation and oversight. If this were reversed with the big banks having a free run and not being investigated, while union funds were forced into an over-zealous regulatory environment forcing their costs higher, every major media centre would be bombarded with stories that they would print (along with the compulsory biased Choice article).

Well said. The union funds believe they have won. Clever controlling of the agenda on their behalf, with them all singing from the same hymn sheet and mistakenly being seen to be virtuous by inept pollies, corrupt media, and the falsely all-powerful public perception.

The major opposition, the big 4 banks, have folded and thrown in their hand thus far on advice provision.

The next move by the greedy left is orchestrating the new APRA enquiry into super trustees, which will also convince the gutless new breed of politically correct career CEO's at the banks that even having super products isn't profitable. The constant badgering of insto's like AMP & IOOF (deserved or not) will eventually make them small part players with insignificant market share in super.

At the same time the left have also thrown enough questions around SMSF's, that the ATO have made the life of everyday trustees problematic and bogged down in red tape.

FASEA and the upcoming education standards is also a cleverly contrived method of culling non-industry fund adviser ranks, thinning the herd, so that the public become more and more used to using the far easier, supposedly 'less costly' and far less complex process of seeing an industry fund adviser or union fund web service.

And while the IFA's like me may think they won't be affected, and the unfortunately loudly vocal 'holier than thou' contingent will praise the wonderful new changes, endorse the brutal tactics to increase qualification levels, and scorn large insto's ever being involved in FP in the first place, the development into new products and range of available choices and flexibility will begin drying up around them.

Have to admit it is a smart play by our socialist aspirants, with billions of dollars in future revenue streams on the line for the Unions & Labor, which will assure their organisation's financial future, the personal wealth of their key players, and ultimately their political ascendancy and dominance once this current older generation die out (the same ones who annoyingly wanted to retain their franking credits and SMSF's, but as industry funds become the majority used super solution in the future, this voice and voting power will also wane).

There could be a complete reversion back to a sole product representative model with employed advisers representing one organisation's product only....( an Authorised Sales Representative or Authorised Product Representative ?)
I assume these employed advisers would no longer be subject to the BID as they would not have the capacity to place or assess any other competitor's product.....authorised only to advise on the company's products they represent.
The adviser would simply represent one organisation and the customer would be made clearly aware of this fact and make a decision accordingly.
If they want to proceed with a comparison with other products or strategy they could effect that process just like they would if they were buying a car or real estate.
For those advisers who need to achieve degree status in the future in order to be deemed a Financial Planner or Financial Adviser and who wish to provide holistic advice across all available product, then fine.
For those who still wish to provide advice limited to one organisation only and be known as an Authorised Product Representative , then passing the FASEA exam and retaining appropriate CE points and ongoing audit requirements should be all that is necessary.
Customers would still be receiving personal advice based on their needs and objectives, but be limited to the product range available through that organisation.
Bonuses could never be paid based on production or business volume , but on specific customer satisfaction criteria.
Back to the future ?

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