Industry funds canvass three-way advice fee split

Industry superannuation funds are asking whether it is possible to split advice fees into three components, one of which is intrafund advice.

In a discussion paper forming part of Industry Funds Service (IFS) submission to the Australian Securities and Investments Commission’s (ASIC's) current advice within superannuation project, the industry funds body has openly canvassed whether it is possible to split statement of advice (SOA) fees into three components.

It listed those three components as “(part intra-fund, part fee deduction from account, and part payable directly by the member)?”

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In asking the question, the IFS document has argued that “a full retirement plan may involve advice on investment choice (covered by intra-fund), contributions and pension recommendations, including Centrelink, that we charge the member via a deduction from their account, and a non-super investment recommendation which the member needs to pay from their own funds, for example”.

“What is the expectation of a fund to accurately cost their advice in order to set their advice fees?” It asked. “Further, for advice that goes beyond intra-fund, how is it to be determined what the costs of those elements are in achieving cost recovery?”

The IFS document has pointed to areas where the organisation there needs to be more regulatory guidance and clarification and specifically asks whether retirement advice can be provided as intra-fund advice.

“This is where we see the biggest contention from the broader advice industry, and the widest variance of interpretation amongst super fund,” it said. “Some funds provide near full retirement planning advice under its ‘intra-fund offering’ and remain silent on advice relating to other products or a spouse. Other funds do not provide retirement advice in any form on the basis that it isn’t simple and cannot include strategies for a non-member spouse.”

The IFS paper also asks whether the charging rules have such a significant impact on how advisers are licensed, and hence which members needs are addressed and states that, “more fundamental is whether the use of limited licensing to align to intra-fund charging rules is creating challenges for advice models and advisers i.e. the scope of needs rarely falls neatly into one charging bucket. The limited adviser needs to assess whether the member sufficiently understands the impact of only receiving limited advice and then determine if it’s appropriate to proceed with giving it.”

“This is a growing conflict for limited licensed advisers who often need to operate at the limits of what they are allowed to do, yet are qualified and capable of solving for more,” the IFS paper said. “Further the member’s expectations are for them to address their superannuation and retirement needs. Limited super licensing is not something that a consumer should be expected to understand. Instead advisers should be licensed to solve for super and retirement and scope up and down as required.”

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So there it is, " Some funds provide near full retirement planning advice under its ‘intra-fund offering’ and remain silent on advice relating to other products or a spouse'- so we all know that every member gets charged to fund that Full Retirement Planning, when only a small number of members actually need that - this is Fees for No Service. And, yes, IFS , like the rest of us, you have to go to the trouble of costing your advice per client to the scope of advice - since you've raised the question it is something you don't seem to understand. This is so reminiscent of the institutional feigned ignorance on these matters, while they kept taking in the rivers of gold. They know exactly what is at stake and what they are doing.

All of these fees are perfectly acceptable proivided that the relevant providers of the advice (a) are appropriately licenced (b) "know their client" via an appropriate fact find (c) appropriately research existing products and suitable replacemnet products, if any (d) provide an SOA which details recomendations and other options considered, and (e) if the fees are recurring, provide an Annual Fee Disclosure Documents and a Bi-Annual Opt-In.
All seems pretty simple, except Industry Funds do not want to do this as they would be requirted to reveal that there in nothing particularly special about their product at all. After all they are just another retail option purportedly with a "mutual" purpose which remains obscure.

Industry Super Compare the Pair = the only Advisers receiving Hidden Commissions from ALL members paying for FULL Retirement planning for a very limited set of members.
Industry Super, 25 years of screaming about Advisers and Hidden Commissions and this is now your Adviser business model. WTF !!
ASIC, your are totally Corrupt in letting this continue.
Industry Super = Hidden Adviser Commissions, what an absolute RORT !!!!!!!!!!!!

If they are talking about fees disclosed in an SoA then it is a minor side issue.

Most advice given by union funds doesn't come with an SoA (or any other form of disclosure). It isn't given by licensed advisers, and it doesn't provide any of the consumer protections associated with Best Interest Duty or the FASEA Code of Ethics. It is a sales pitch, given by unlicensed sales people, under the cloak of "General Advice".

The sooner "General Advice" and regulatory carve outs for super fund employees are banned, the better for consumers.

The solution is pretty simple. The Sole Purpose Test needs to be expanded so that financial advice is an ancillary purpose. This would help industry funds with their intrafund advice dilemma, benefit consumers and make life much easier for independent advisers. Winners all around. I really don't know why the FPA haven't been pushing for it. Surely it would be much more palatable for the government than making advice tax deductible and it would have a similar effect in terms of making financial advice more accessible and easier for consumers to afford. Craig Day from CFS mentioned this as an idea in passing at a workshop last year, but apart from that I have not heard anyone mention it.

How is it even possible to provide Full Retirement Planning when you're not included the spouse in the equation? What if the best advice was for the fund member to withdraw all of their super and stick it in the spouse's account to enable them to improve their Centrelink entitlements? this admission from IFS should be enough for ASIC to commence and immediate inquiry into intrafund advice or put it on hold altogether until some definitive rules are put in place as to what can and can't be advised on.

I have a financial advisor that I pay over $400 a month for advice and planning of my simple financial structure. I'm lost on comparison tools and ways to evaluate where my super is heading in comparison to other funds. I've recently been told, after requesting the information that since 2013 to now based on a Growth investment platform that my average return for my super over this time is 6.68%. How do I compare and know if my advisor is doing right by me. How do I know if the fund is truly looking after me. It's very difficult when when you pay $5000.00 a year in advisor fees and additional commissions/percentage based costings on your super balance/contributions to work out if you have a dud package. We need more transparency and open advice to be informed.
I welcome any comments. I'm just a micro small business owner, no partner, no complicated tax or investment issues.

Hi Paul,
Welcome to the forum. I’ll try and help clear up what I can, without seeing your investment portfolio. Firstly comparison tools on varying super websites aren’t really where you want to be focussing your energies - every fund will will have different allocations to growth and defensive assets, so you won’t really be comparing like for like. I’m going to assume for $400 per month your Financial Adviser is providing you with investment advice, again assuming this is not an SMSF ask them for a statement or a portfolio performance report from the super fund they use. This will allow you to see the net % returns. When comparing returns you really need to make sure you are looking at net of fees and a similar allocation to growth and defensive assets. Some funds will label investments as ‘real assets’ or ‘direct assets’ - this is typically an allocation to illiquid property and infrastructure holdings, so be aware on comparisons tools if you see it. I tend to place little weight on the returns in these asset classes as they are usually illiquid and can have questionable valuations. First port of call -go back to your adviser as I’m sure they’ll have most of the answers you seek at their fingertips.

Hi Paul, you've discovered an issue that the whole super industry is grappling with at the moment. Comparing returns between funds is extremely difficult. In your case you're paying an Adviser $4,800 per annum for a service and that service should include reporting that compares your net return, that's after all fees including the Adviser fee, against a comparable benchmark. The most important thing when benchmarking returns is to ignore what the portfolio or benchmark is called and just look at it's exposure to growth assets. If you're Adviser tells you it's a growth portfolio with 75% allocated to growth assets then tell them you want it compared to a benchmark with similar growth exposure. Research houses like Lonsec, who Advisers have access to, have benchmarks that can be used.

Regarding the fee you are paying, it is very high if your affairs are simple and the Adviser is only providing advice on the investment of your super. If they have helped you identify your objectives and provided strategies and modelling to show how the recommended strategies will achieve those objectives, and then are reviewing them with you on a regular basis, then perhaps that fee could be justified. Have a think about what value you are getting from that fee and if it doesn't seem to line up then have a chat with the Adviser to see if they offer a lower cost package or even an Ad Hoc arrangement where you don't pay an ongoing fee you only pay when you need their help e.g. for a review.

Look at you guys getting sucked in by a fake client geezuz, surely you are smarter than that? Paul dosen't exist, why would a client come one here asking questions like this, and making it look like they don't understand the fees or value? Its like some of the submissions to ASIC, completely made up stories to get points across.. If Paul was real he would have already spoken to his adviser first before going onto a public forum surely. He would be getting annual FDS, he would have had to sign a new agreement and new ASF form recently for these charges to keep going. Wake up guys, why would a client disclose what fees they are paying to strangers? Something smells fishy about "Paul" and you guys took it hook line and sinker.

No need to get nasty mate. Maybe Paul's real maybe not, some Advisers (or people in general) are keen to help wherever possible, perhaps you don't fit into this category.

Your comments regarding him receiving an FDS, signing an ongoing service arrangement etc miss the point.....many people still do not understand what they are actually paying for me. Many advisers give out FDS's as part of a larger review document and never address it with the client, if they're pre-fofa then they don't need to opt-in, so the situation just rolls on.

Thanks Brett, good to see there are still some of us out there!

He should not be comparing net return after adviser fees unless the only service provided by the adviser for those fees is to improve his super fund returns. It is likely that most of his adviser fee is actually being paid for a variety of other strategic, non super, and tax related issues. Therefore those fees should not be linked to super fund performance.

It is also likely part of the value provided by his adviser is ongoing coaching and reassurance to ensure he sticks to his strategy rather than making repeated loss making switches in response to media hype and hysteria. Many unadvised investors actually achieve returns well below benchmark because they switch at the wrong times. This is not a product issue, it is an investor behaviour issue, something which advice can significantly improve.

Good points.

Paul, are you meeting all your goals, are you happy, are you healthy....Are you living life to the fullest. Are you focussing on your career, or your family, or your faith or your hobbies. Are you confident your funds will last your life. If you answer Yes, Yes Yes to all of the above, then $5,000 is well spent. could always walk down the road and get a second opinion about the advice fee and see what the next guy will charge...but then again....My superfund from 1 September 2012 till August 2016 delivered 12%. And they advertise that in large writing in November 2020....and they told me it only costs $1.50 per week and you're paying $5,000..Yikes. Funny how they advertise that time frame and it's four years old and $1.50 seems too cheep but hey, I trust them because they're an industry super fund.

Hi Hang On,
I can assure you I'm a real person, I don't hide behind false names. I have an advisor that provides Bi-annual advice meetings, provides Money Soft hardware and is available for phone questions. I understand this has a cost. In brief I was divorced in 2013 and was put on the Gold standard structure through my advisor. My main concern is that as a small business owner I don't have the ability to properly gauge how my investments are going with regard to other opportunities. I have $325,000.00 invested in super and $109,000.00 in ASX. We as lay people are told to invest in super to look after us when we retire, but have no way of knowing whether we are being taken for a ride. "Hang On" ,I bet you don't like to lose money if you can help it. My main concern as stated, was that I don't know if 6.68% return on average from 2013 to 2020 acceptable for a Growth platform. I'm unsure if that percentage is a net figure, I will check. If more basic information and education was given to all Australians with regard to finance I'm sure this country would be more prosperous. Rest assured, I'm real and after penning the first long winded response to "Hang On" on the iPhone and accidentally loosing it, I'm at my wit's end. How's that for a make up person.
Frustrated and in need of a drink.

Hi Paul, apologies if I was rude, however we do get a lot of stick online as advisers and some comments made on the internet are made by fake people trying to twist things. I took your post the wrong way and I apologise for that. Not sure how old you are but that seems a decent balance depending on when you want to retire. The past 12 or so months as you know have been bad for the markets, however 6.7% annualised over past 7 years incluring this recent drop isnt bad for a diversifed growth portfolio. Trust in your adviser, if you dont feel comfortable or uneasy tell them, if they cant change that find someone else. You need to feel you are getting value. The other comments from brett etc are spot on, and apologies to them too. Good luck and cheers to you too.

Hi all,
Thanks to everyone who took the time to respond.

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