CFS acts on adviser fees with its super funds

23 October 2019

Colonial First State (CFS) will end Adviser Services Fees within its superannuation funds unless clients opt-in, motivated in large part by the joint letter sent by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) earlier this year.

CFS has written to advisers informing them that it will be contacting members of the superannuation in early December asking them to confirm their willingness to continue having fees deducted from their superannuation and pension accounts.

The Association of Financial Advisers chief executive, Phil Kewin, expressed concern at the impact of the joint letter from the regulators had prompted the CFS move.

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The CFS letter said that from 2 December the firm would be contacting superannuation fund members who had an ongoing Adviser Service Fee (ASF) deducted from their account for 12 months or longer.

However, it said that from 23 October it would be contacting advisers with a list of their impacted clients to help them prepare.

“If we receive a completed Adviser Service Fee and Adviser Trail Rebate Nomination form from a member before 20 November, 2019, this will be sufficient confirmation to the trustee that the member is aware of the advice fees they pay from their account and we won’t seek an additional authorisation,” it said.

“We’ll provide advisers a copy of the member communications in the week commencing 18 November, 2019.”

The CFS documentation said that superannuation fund members would receive a letter, authority form and information sheet and then have 90 days (with reminders at 30 and 60 days) from the date of the letter.

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So, as well as clients receiving an FDS and having to opt-in, CFS want a specific form from the client in order to continue to pay advice fees to advisers? Thanks, CFS, way to go. Just put more compliance pressure on advisers and their clients! Do the clients also have to opt-in to continue to pay your fees CFS?

This is unacceptable on every level.
The Adviser Service Fee is NOT grandfathered commission.
The ASF is an agreement between the superannuation member or pension account holder and the adviser for the provision of ongoing advice.
It is the responsibility of the adviser to have the FDS and the Opt-In agreement completed.
How is that CFS are stating that if they receive an Adviser Service Fee form before 20th Nov they will not seek further authorisation when an Adviser Service Fee arrangement already exists !
If a CFS pension or superannuation account was established post FOFA then the only remuneration option to the adviser if paid from the pension or superannuation account was the ASF either on a one off or ongoing basis.
The client agreed to this at the commencement and receives the FDS and the Opt In notice from the adviser indicating their preference to continue the relationship and the fee payment.
This is a disgrace.

This is ridiculous. We don't conduct reviews every 90 days. I'm happy to put another form in front of my client, as they already sign off so many god damn forms. But to go over our heads and demand our clients sign additional documentation within a short period of time, is insane.

I'm not condoning this behaviour from CFS, however there is something that advisers fundamentally dont understand. It's this:

1. Advice fees are an expense of the super fund
2. Trustees are responsible for all expenses of the super fund
3. Trustees have zero obligations to pay any advice fees to an adviser
4. APRA is currently smashing super funds over advice fees. They are making up for years of inactivity.

It's a new world. Adapt to a model where you invoice the client directly. Yes, this will leave 'smaller' clients behind.

What, so you directly invoice 250 clients a month, every month of the year ??....3000 invoices a year ?
If the client has always paid a monthly fee from their account for ongoing advice throughout the year, are you suggesting that they now should be invoiced annually ?
Is this in advance or arrears ?
Currently the majority ASF payments would be deducted on a monthly basis from the client account to ensure as much capital remains invested within the account.
The process that CFS are employing is entirely wrong.
So, Trustee has zero obligations to pay any advice fees to an adviser when there is an existing authorised instruction from the member to the Trustee to pay the adviser an adviser service fee.?
So, the instruction and authorisation from the member to the Trustee is meaningless ?

"What, so you directly invoice 250 clients a month, every month of the year ??....3000 invoices a year ?"

Of course not. Annual invoice, paid monthly if needed (direct debit).

"So, Trustee has zero obligations to pay any advice fees to an adviser when there is an existing authorised instruction from the member to the Trustee to pay the adviser an adviser service fee.?"

Correct. No trustee HAS to pay a fee from the fund. Fullstop.

"So, the instruction and authorisation from the member to the Trustee is meaningless ?"

I wouldn't say meaningless... but the trustee has no obligation.

Call your BDM from ANY super fund. There is a difference between "will they pay" and do they "have to pay".

"Annual invoice, paid monthly (direct debit)"....
From the clients invested monies or from the client's bank account ?
If it's the latter, the client's cash flow has now been adversely affected as opposed to funding the advice fee from within the
super or pension account.

"client's cash flow has now been adversely affected as opposed to funding the advice fee from within the
super or pension account"

No doubt. However, should be at least partially deductible. Fairly simple solution available for pensions also. Future proof your business.

Dont forget the Sole Purpose Test- in the very near future, if you're advising on a range of accounts, super and non-super, you're going to have to charge your service fee partially from each one, and likely a CMA as well.

" in the very near future"

You mean now, right? This is the law... sole purpose test is a thing.

If that is the case, tell me one reason I would remain Licensed? Seems easier to just bill the client directly, not provide and Advice document ie SOA and charge a lot less. No need to identify myself as an Adviser on the product as I can't get paid from it anyway so just get the client to make any required changes.

I then have no incentive on the clients product - and at that point I basically don't care about the clients product.

Looks like a big incentive for Financial Coaches. Not sure that I like this outcome but it is an obvious outcome.

"If that is the case, tell me one reason I would remain Licensed?"

Well, it would be illegal for you to provide advice without a licence?

Technically correct dude. But thousands of accountants, real estate agents, union fund sales reps mortgage brokers, and content writers give illegal financial advice every day with impunity. On the rare occasions when one of them is investigated, the sanction is a ban on providing financial advice!

ASIC is much more focused on persecuting licensed advisers, than it is on protecting consumers from illegal advice.

Just goes to show that they have absolutely no idea. Probably less than the no idea. All the product managers will now rush to the door and show no consistency at all.

WOW! CBA getting on their moral high horse again in a vain attempt to earn kudos from the public and repair their incredibly tarnished reputation. This from the company that has wasted billions of dollars of shareholders money over the last few years in the wealth space and with their AML issues. Why would any decent adviser want to do business with them? I don't.

Given the entire industry will be moving to annual opt-in at the end of 2020 (many earlier), one must wonder what CFS hopes to achieve by dumping this now on an already over-burdened (and dwindling) adviser population struggling to cope with regulatory upheaval.

They want to kill you off so they can lead the market in wholesale direct to client. That is why they also come at you from the other side through Choice Magazine. They have killed off the FPA, dominated the FASEA process and are also behind the attack on mortgage brokers. They know the final round is between the likes of them, ISA, Macquarie, Vanguard and Google

If your client signs an annual Service Agreement you won’t have any issues. If not, your living in the old world.

They already sign a Terms of Engagement, SOA, have annual reviews (plus the rest) FDS annually, the Adviser's Fees are clearly on the clients Annual Statements from the Product (but you try and find the product fees), they sign Opt-In. Now another form at a different time to all the others.

I think it is easier to be an Industry Fund business model - charge everyone a fee for providing Intra Fund advice and you can not opt out of it, the service does not have to be deliver and no compliance. No wonder AMP is moving this way. And I forgot, no CONFLICTS.

We will be moving our clients out of CFS.

This is the last straw. Service levels are down, regular mistakes are happening, there is no such thing as reasonable response time, processes are falling apart, their overall offering which once led the pack is now sadly lagging, and now they are directly interfering with clients payments to firms.

All they needed to do was have an adviser firm sign that the clients are actively engaged and serviced. The onus and legal responsibility would then be on the adviser, bearing in mind the FASEA standards would prevent misleading statements by advisers to CFS under threat of becoming unregistered and no longer operating in the industry.

This is heavy handed and a knee jerk response to CFS's current legal woes by a trustee board who have no real understanding of who their clients actually are, how the financial services system works and what advisers are currently providing them as a business.

Your final paragraph neatly encapsulated the problem. It is you and many advisers like you that don’t understand the trustee responsibility and relationships. It’s a real indictment on the industry practitioners.

Perhaps read the referenced ASIC and APRA letter to understand why your proposal to rely on adviser attestaions is not possible. Maybe a refresher on the royal commission outcomes would be worthwhile too.

Very clever " Dunning Kruger " .
I assume not only do you think you know more than you do , but also love telling people you do.
Or is it that you actually do know a lot and still continually tell people you do.
What sort of "effect" is that ??.....especially on all the other people around you ?

Dunning is correct. The Trustee has a duty to act in the members best interest and from next year further bound by Member Outcomes requirements. The Trustees obligation is to the super fund member not a third party.

Incorrect, both dunny and your comments.

I have recently retired from the board of one of these organisations and now consult in my semi-retirement to a number of groups, so happy to argue the semantics any time you choose.

The 'best interests' has no bearing on 'commercial superfund trustees', otherwise I dare say, a number of our industry fund compatriots in particular would be out of business in sharp order.

Trustees do however have a duty specifically towards the sole purpose test which is entirely different.

Likewise, trustees can allow fees and charges that are appropriately charged by third parties for professional services rendered, without consultation with the members at all. All rather obvious I am afraid.

In all instances, the trustee has to be suitably satisfied that the charges are appropriate, that the services have been rendered, are suitable and performed by a qualified third party. In this regard, the original author would be correct in indicating that the trustee could legally rely upon the representation that the duties have been fulfilled and continue the existing previously agreed fees, given that the advisers in question now have a legal and enforceable ethical obligation to gain both member {client} approval on a regular basis and not provide misleading statements.

I suggest you & dunny do a refresher yourselves.

Also, if you don't mind me saying, it has been my experience over the years that those falsely attempting to be 'holier than thou', especially those who do so with derogatory remarks of others, are in dire need of soul searching and inner reflection to correct their own flaws in character and insecurities.

Anon, you may want to revisit section 52(2)(c) of the SIS Act while the rest of us are taking your advice to get re-educated. Cheers.

Anon, you may want to read the direction from APRA and ASIC to RSE’s before your next consulting gig........And perhaps rewind the tape on the RC hearings. You are clearly missing a whole lot of context. I’d particularly recommend the questioning of the CFS rep about relying on the dealer terms of trade for releasing ASF’s. Happy to help. To whom do I address my consultancy invoice?

Will CFS or any super fund trustee also be under the obligation to have their members sign an annual agreement authorising the fund to deduct the management fees from their account ?
This should also be mandatory....or is it ok for the fund to have an initial agreement from the member upon joining the fund (maybe 20 years ago) ??
If the fund itself is allowed to continue to deduct their own management fees every month and every year without an annual agreement from the member, how on earth is it a requirement being pushed by ASIC and APRA to have the fund to hold an annual authorisation from the member to deduct advice fees ??
You can clearly see where the regulators agenda lies now.
It is transparent, obvious and most unfortunately, predictable.

"Will CFS or any super fund trustee also be under the obligation to have their members sign an annual agreement authorising the fund to deduct the management fees from their account ?"

I'm sorry, but that is just so dumb.

Agent 86 died 14 years ago... time to move on.

"Will CFS or any super fund trustee also be under the obligation to have their members sign an annual agreement authorising the fund to deduct the management fees from their account ?"

I'm sorry, but that is just so dumb.

Agent 86 died 14 years ago... time to move on.

Pathetic attempt, reality. Grow up and please attempt to be a little professional will you?

Agent86, it doesn't relate to continuing disclosure of fees. It relates to evidencing the services that have been provided. In the case of financial advisers that are third parties, the trustee needs to ensure that services have been provided. In relation to management fees, they already monitor that. Management fees (with all fees) are also required to be disclosed annually on member statements. Hope this helps.

"FASEA Standard 7. The client must give free and informed consent to all benefits you and your principal will receive in connection with acting for the client, including any fees for services that may be charged. If required in the case of an existing client, the consent should be obtained as soon as practicable after this Code commences."

I understood from this Standard that all existing fee clients would need to sign a new "free and informed consent form" after 1st January 2020 - before any fees are deducted from their product or before any fees are paid directly by the client.

Even if CFS requests this consent directly from the members, the advisers will still have to obtain consent from their clients or else they wont meet Standard 7.

I wish everyone luck when this starts. Just finished terminating agreements with product managers. No consistent approaches, staff at the product managers had no idea about the changes in grandfathered commissions, no standard forms. And since cancelling in June 2019, although advisers are changed they are still paying commissions - go figure. I wish ASIC luck and happy to be finished.

why oh why is everyone trying to destroy financial planners... must be FAT CAT corporate greed. Not ok to treat clients poorly but perfectly ok to treat a planner (and small business owner) with contempt

We have a best interest duty and a new code from Jan so at reviews we will be moving clients to the most suitable fund at the time which is 99% of the time going to be a lower fee fund.
If you own a product then this will cost you money and that is what the battle is about.
By reducing competition (advisers) by FASEA, the code, annual fee payments, no fees from super, additional compliance paperwork less clients will get advice.
This means the product provider will keep more disengage clients in higher paying product and will therefore protect their own revenue.
Check and mate
Go and speak to your MP to bring it to their attention. It's how the mortgage brokers got support. Providers are trying to control the market.

You summed it up nicely. This is clearly Colonial's first strike... why would any Super fund write to clients just before Christmas,,,,they know they won't get forms back, they've done this before with expiring death benefit nominations.... and they're counting on it.

Exactly, but the LNP is in on it as well. They have actually cornered mortgage brokers as well, they just don’t know it yet. Fact - mortgage broker commissions are explicitly banned as conflicted remuneration in the upcoming legislation but exempted under regulation. In three years at their review the ALP policy is to remove the exemption and the LNP at the behest of CBA will also remove the exemption as a consequence of their “review”.

That's the last straw "I'm OUT!'

I charge clients direct from their super fund as the fund itself can claim a GST rebate whilst the individuals don't so a $2,500 advice fee comes back to about $2,300 for the client. Secondly clients with superannuation funds where there spouse is on an age pension or Centrelink payment the fee is deducted out of super as the fund claims it as a tax deduction. So $2,500 comes to $2,125. Further more clients like it like that because a third party handles it. Colonial timing is terrible given advisers will need informed consent "as soon as practical" from the 1st of January to meet FASEA standard 7 so clients will get bombarded with a letter from CFS, a letter from advisers and no doubt Opt in. I can appreciate ASIC has stated trustees have a fiduciary obligation but this can be better handled.

Can't do that, if that file was audited you would fail. If you didn't fail then leave your licensee because ASIC are coming for them. Can't deduct fees from a superfund related to advice provided to another person or not directly related to the super fund. Centrelink advice has nothing to do with the super fund of another person.

Yes I can. You've misread me. Its superannuation advice but I'm saying for their own personal circumstance dictates how they pay. As they're on Centrelink it's more appropriate to have the fee deducted out of a Superannuation account. They could pay my advice fee from a Credit Card, Direct Debit, Super fund or paid to me in Coconuts. Because they are unable to personally claim the fee as a tax deduction we elect to take it from Super. The fee relates to Superannuation advice and meets the sole purpose test.

We can blame the FPA for this. They sided with "I charge dead people" the CBA. Once upon a time Colonial would email these communications... Now I read about them in Media. That says it all about the demise of Colonial. Personally, I think the retail space has declared War on Financial Planners....only that we haven't realized. They're moving to Apps and websites and we're now the competition. If Colonial were on our side they'd be writing to ASIC asking for Opt In obligations to be removed. After all we have Opt in because super funds didn't want this and now we've got two more %#4 forms.

Have any of you guys actually called your CFS BDM to ask whether this article is accurate? I did, he said that they are acting in response to the letter from APRA but at this stage it is a small sample of Advisers they are getting in touch with and in general it is only if there has not been any kind of activity on the client's account for a number of years. It's not a blanket mailout as reported in this article and if your client accounts have some form of activity, which can include a switch, lodging a nomination form etc. then it won't be an issue going forward either.

Everyone here is jumping onto CFS about this, but at the end of the day APRA is requiring them to be satisfied that their members are aware of the fees they're paying and that they are receiving services in return. All trustees will go down the same path.

The Code of Ethics is the real concern, what a joke of a document that is.

Just spoke to someone from the inside. ASIC has forced this upon CFS and presumably other super funds. This is nasty stuff. Legislation is pending following the Royal Commission, to move towards a 12 month Opt-In. Presumably, as part of the process, there will be some sort of analysis as to what is fair and workable. Yet ASIC have pre-empted this and are forcing super funds to act early in a draconian way. Apparently the letter sent by ASIC told CFS they cannot trust financial advisers because we have a conflict of interest and so the super funds cannot accept confirmation from us that the clients have Opted In. In fact they can't even accept a form signed by the client if it comes from a financial planner. The confirmation needs to come directly from the client. I haven't seen the letter, but this is what I was told. This is crazy stuff. ASIC is clearly intent on causing the maximum possible damage to financial advice businesses. What a sad world we live in

Here is the letter. It really does give a good insight into the thinking of ASIC - and it is not good.

Ask CFS what happens to the client if they don't agree to the service fee?

They get put into an orphan pool managed by CFS and charged $500 pa plus GST for the privilege!!!!

Is this accurate information regarding the fee charged ?
If so, where is this information available ?

FirstWrap PDS page 2

So they take in one hand and take in the other as well. However at least ASIC and the government is happy with the magic mirror Duck approach. Like putting lipstick on a pig

I think you will find this applies if there is no adviser on the account, not if there is no ASF on the account. Quite different don’t you think?

But it is interesting that you think they are one and the same. You know you can get paid by means other than from the product right? Plenty of us do it.

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