Intra-fund advice has created advice unfairness

A ‘cone of silence’ exists around intra-fund advice that has created an unfair legislative environment that favours one group of financial advisers over others.

That is a central premise of a submission to Treasury by West Australian-based financial adviser, Steve Blizard who said he believed there had been excessive media focus on Future of Financial Advice (FoFA) legislation since 2013, but virtually nothing about intra-fund advice payments “whereby default super fund marketing representatives and their advisers are remunerated”.

Within his submission, Blizard has cited examples (contained within the Financial Services Guides (FSG) of industry superannuation funds of those funds paying ‘bonuses’ of up to $40,000 to financial advisers.

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“While bank staff have been totally banned form earning sales bonuses, many Industry Super fund staff and advisers are permitted under the intra-fund system to earn ‘performance bonsues’, in additional to receiving complimentary gym memberships,” his submission said.

“While intra-fund advisers deliver a certain level of compliance information for clients (i.e.Statements of Advice for rollovers), they do not have to comply with any other form of FOFA red-tape, such as annual Fee Disclosure Statements, nor do they have to chase up bi-annual Opt Ins, simply to get paid.”

“Instead, most intra-fund staff and advisers are remunerated primarily from collective administration fees automatically deducted from all super fund members,” Blizard’s submission said.

His submission argued that collective administration should only be charged by superannuation fund trustees for simple administration and provision of general factual information to fund members.

“Collective fees should not be charged to members unless the fund trustee obtains annual consent from members for these fees to be charged as administration fees from their fund,” Blizard’s submission said.

He said that, alternatively, all advice fees provided by Default Funds should be charged on a ‘user pays’ basis with informed consent provided by the fund member in advance for those fees.

“Any other form of personal advice should be charged directly to the member seeking advice, and not paid for by other members who are not receiving that advice. All advisers employed by that Trustee, who are providing financial product advice should not be remunerated by other members in lieu.”




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Well done to this fellow for submitting. He's correct.

I can guarantee there are no intra-fund advisers at industry super funds getting $40k bonuses. There may have been comprehensive FPs getting bonuses of that amount but the fees are coming directly from the client and not the admin fee and they would have to have been working a lot of overtime and bringing in a high level of advice fees to get anywhere near what the banks were paying in bonuses. Remember industry super funds are fee for service and always have been. Intra fund advice is just a simple advice service provided by the fund through the admin fee and not comprehensive advice so I don't know why FPs would be concerned about this.

Thanks Mark, how do the advisers plan to deal with FASEA Standard 3 - if there is a conflict, I must not act.

From the StatePlus FSG...
"Our planners will only recommend financial products which have been authorised by us. While there may be other products on the market that may also suit your circumstances, our planners will only recommend products that StatePlus or First State Super issue, or other products that have been thoroughly researched and we consider meet the needs of our clients."

"Advice received by eligible First State Super members on their existing superannuation interest, is provided at no additional cost. First State Super pays StatePlus a fee to provide this service. The cost of providing this service is deducted out of the administration fee First State Super charges its members."
Looks Conflicted?

And Mark the reason people are unhappy that intra fund advice is paid through the admin fee - is because it lacks transparency. Clients don't realise that they are paying for others. Whether it breaches Sole Purposes is another matter. RG97 makes it likely it will need to be disclosed separately, so there must be a problem.

Dear Mark, Are you suggesting that the FSG material is incorrect? Or that the submission is factually wrong when it refers to FSG's?

The issue is that default super fund members are compulsory paying an advice fee (via their ever-increasing admin fee) that they have not provided informed consent to the fund trustee, and have not opted into. If they nominate their default fund as their choice fund, and tick a box that they consent to these fees, that may be a different matter. But at this stage, no default super fund member has given informed consent to have these advice fees deducted out of their fund (saying it is in the admin fee, not the super fund account is simply playing with words].

"Remember industry super funds are fee for service and always have been." Well then Mark, stop the deduction of Fees and simply charge the client/member a fee ONLY WHEN THE MEMBER RECEIVES THE SERVICE. If the member values the service, then they should be happy to pay. Not sure that the member will get anything better than conflicted product advice all directed to the in-house product but that is another story.

Correct. Sounds like the ultimate case of 'fee for no service' and yet Haynes and ASIC were and are silent on this.

UniSuper – Personal Advice FSG – 17 Jan 2020 - Page 5 (publicly available on the UniSuper website)
HOW ARE OUR ADVISERS REMUNERATED?

UniSuper advisers are employees of USM. They are remunerated by way of a base salary and potential bonuses.

Potential bonuses are based on quality and service targets, as well as billable hours targets. The only revenue considered for
the purpose of adviser remuneration are the total advice fees charged each financial year to clients for the advice they receive.

The potential bonus that is payable is between 0% and 40% of an individual adviser’s base salary depending on their role.
For example, an adviser with an annual salary of $100,000 per annum may receive annual bonuses up to $40,000 per annum.
http://tiny.cc/unisuperfsg

Mark's guarantee is looking shaky.

Steve, when it says "the only revenue considered for the purpose of adviser remuneration are the total advice fees charged each financial year to clients for the advice they receive", to me this means it doesn't include any fees that are paid from the admin fee for intra-fund advice? UniSuper give comprehensive advice so I don't see how this is any different to any other financial planning firm.

And what product do they recommend?

Tom - why no, we're exactly the same apart from all the restrictions, extra-regulations and compliance requirements you mean? Muppet.

Link Advice – Australian Super – Joint Financial Services Guide – 22 March 2019 (Page 1 & 2)

The representatives are either salaried employees of AustralianSuper Pty Ltd or salaried employees of Link Advice. Salaried employees of Link Advice may qualify for performance based BONUSES. These bonuses are discretionary and are dependent on achievement of predetermined compliance and service standards and business objectives. http://tiny.cc/LinkAusSuper

Seriously, can we stop pretending? We all know Industry Funds added financial planners as an after thought and the only reason they exist is to keep members in the fund. Any good advice they give is only incidental. The reason why they can take advice fees from all members, is because (in the twisted minds of the directors) it is in the members best interest to have scale. So let's call them what they are - sales people or retention officers. What next? Drug companies will be able to employ call centre staff to give advice directly to patients? Would you be happy with that Mark? No conflicts there? What if the advice is limited to switching doses, or switching to another one of their branded products or remaining on the medication longer? Would that be ok under the banner of 'intra-medication advice'. Yeah right. See how bad it looks you compare it to another industry. There needs to be a complete separation of product and advice. I'm sick of this nonsense from industry fund product floggers masquerading as financial advisers. They are completely brainwashed, totally conflicted and a blight on our profession.

100% correct. In discussing this issue with a former Employer Representative for the TWU Super fund (until 2007), she was stunned to learn how Intra-fund remuneration paid to advisers since 2013, had flown under the radar, primarily benefiting Industry super fund market share.

When this former Trustee read the ASIC website about Intra-Fund, her immediate response was that those Industry Fund employees are not really giving advice, but simply acting as paid marketing representatives, but without having to comply most of the FOFA red-tape.

It was clear to this former Industry Super Fund Trustee that “intra-fund advice” was effectively no different to the AMP “fees for no service” scenario as outlined in the Haynes Royal Commission.

It was explained to me like this: a trailing commission is a fixed amount that comes in on a regular basis post sale without it being tied to an intent of service delivery to an equivalent value. The only variation with the “intra-fund advice” seems to be that an advisory service may be called on by some on an ad hoc basis. Superficially it would appear that there is no administrative link between cost of service delivery and the amount charged. Normally admin fees have to be justified against actual services. Intra-Fund is simply ongoing trail fees, without the red-tape, & should be banned.

the member is already in the product and intra fund advisers cannot provide advice to switch from other products so advice cannot be conflicted. It is just a service provided to the member and a simple one at that. You could argue that they should be charging per phone call to our call centre or an hourly rate for any queries answered or correspondence sent however it is paid by general 'administration fee' just like intra fund advice to save the hassle of having to charge every member individually. Imagine the size of the accounts department if industry funds charged a fee for every phone call to a fund!

Sounds like a commission, smells like a commission.

Perhaps I should do the same - charge a fee from Super for Admin? Any issues Mark?

No Mark that's legally incorrect. A Hold recommendation which is what it is, is advice. And are you saying intra fund advisers don't advise on super consolidations from other accounts? Because they advertise that they do.

Dear Bozo, I understand that Intra fund advice is specificaly allowed to recommend investment strategies. (ie personal advice) provided there is no expectation the client has an onging advice need.... Super consolidations I understand are excluded.... You could try reporting the advertising to ASIC, but i think you would be wasting your time. You may have better results sending it to Hume, with a suggestion she query if ASIC is conderned by this practice, but don't hold your breath.

I have.

Hume once worked for Australian Super. Additionally, Ben Marshan (FPA Head of Policy) likes Intra-Fund advice fees and guess where he came from.

Yes, the FPA fellow has made supportive comments about Intra Fund, but not as I understand it the bundling of the fee into admin fees.

The Govt well know that if they open this can of worms and really get stuck in, it will become overwhelming beyond anyone's imagination.
It's just easier for them to continue attacking IFA's, giving ASIC free reign and carving out Industry Funds obligations.
It would be understandable if Labor were in power as they are shackled at the hip pocket, but the Liberal Govt is gutless and is prepared to see small business go to the wall in an uneven and unfair environment.
It is discriminatory.

Intra fund advice sounds like AMP and the Banks - "ohh you are in an AMP Product, so I will keep you in the AMP product, because my APL says so, and I wont bother looking at any alternatives"

Ok Mark, its time to have a look at the wording in the FSG for the organisation you work for:

" Our financial planners are paid a salary and may be eligible for an INCENTIVE payment twice a year based on achievement of pre-determined compliance, professional and service standards as well as business objectives.
These payments cannot be ascertained at the time this FSG is provided to you "

Superannuation Advice Team
******** Superannuation Advisers are paid a salary and may be eligible for an incentive payment once a year based on the achievement of pre-determined compliance, service standards as well as business objectives.
These payments cannot be ascertained at the time this FSG is provided to you.

Alternative forms of remuneration:
Our financial planners, Executives and Directors may receive the occasional gift or invitations to events from a product provider or referral partnership, although it is rare.

So, the planners are receiving bonus payments twice a year, the Super Advice team is receiving them once a year and the planners and other Execs are receiving gifts from product providers or referral sources.

The whole bullshit mantra of Industry funds in the way they market to their members and the general public as
"only for the benefit of our members etc " is simply a lie.
The other issue is how on this earth can the best interest duty be met ?
The other issue is that it is very simply a case where some members are paying a component of their admin fee designated for Intra-Fund advice.
Whilst this advice may well be simple and related to the member account, if a member never accesses that simple advice they have paid a fee for it simply for being a member of the fund.

Mark, your FSG quotes percentage based fees of up to .75%p.a. for ongoing advice.
Please confirm if your fund issues an annual FDS and and Opt In notice for every member who is paying the asset based fee for ongoing advice .

Mark, you seem to be missing the issue in which you are, in my view, conflicted.
From your employers FSG...
"Our planners will only recommend financial products which have been authorised by us. While there may be other products on the market that may also suit your circumstances, our planners will only recommend products that StatePlus or First State Super issue, or other products that have been thoroughly researched and we consider meet the needs of our clients."

"Advice received by eligible First State Super members on their existing superannuation interest, is provided at no additional cost. First State Super pays StatePlus a fee to provide this service. The cost of providing this service is deducted out of the administration fee First State Super charges its members."

Looks to me like that the only product advice provided is to switch into your in-house product - and you can charge a fee for this if you feel the need. The more you do, the more likely you are to receive a bonus for these rollover (ops, advice fees).

Then, when you have all the members in product.. in your words, "the member is already in the product and intra fund advisers cannot provide advice to switch from other products so advice cannot be conflicted"

The member has very little change of receiving good product advice as you are simply (as a employee of the product) maintain product and will not be considering any alternative products - ie retaining the product.

So basically, the business model is get the members in, charge them all a fee and just service those members that call. The business can probably charge $500 for an SOA to Rollover as there is plenty of money coming in from all other members Intra Funds Advice Fees?

In my mind, this seems as conflicted as it can possibly get.

You can't seriously believe the nonsense you're writing? If you do, then your ability to analyse, research and process factual evidence and available information is severely limited to the point that under FASEA standard 12 I am afraid I would have to report you for not upholding the expected professional ethical standards of removing yourself from the industry!

Bozo, intra fund advisers definitely cannot provide advice on consolidating funds into their industry fund and never have. Intra fund advice can only provide advice on a member's existing investments in the fund. A recommendation to stay in the same investment option is just that, intra fund advice to not change your investment option. It is not saying you should roll funds into your industry fund from outside or that you cant roll funds out to another fund.
As for Wondering's query, sounds like a fee, is a fee not a commission as the fee is not predicated on moving funds into a product, they are already there and paying for the admin and services provided by the fund so what conflict is there? I don't have a problem you charging a fee from super if you are providing the service but as an FP you should be providing advice/service well beyond admin or intra fund advice.

When I review a client or receive a query on his existing investments, I have to go through a personal advice process and create and advice document to say hold. Why are the two same processes different in outcomes and charges and why is the fee hidden as an Admin fee? Then how do they meet the FASEA standard that says you must take into account all other things that would be considered reasonable. Are you saying it is not reasonable to consider the Fund you're with, the fees, the insurances etc and only consider which Risk profile and asset class selection they make? The intra fund advice is oblivious and therefore dangerous. You are saying the member knows exactly what they want and have considered all other issues. It is not promoting good advice in my opinion.

Mark, you wrote,
" is a fee not a commission as the fee is not predicated on moving funds into a product, they are already there and paying for the admin and services provided by the fund so what conflict is there?"
How is this any different to a trailing commission?
Do you see yourself as conflicted?

Mark, I appreciate you work for a different union fund than SunSuper, but since you seem to be making claims on behalf of all union fund advisers I wonder how you explain this info on SunSuper's website...

"When you need more specific advice about your financial situation, the qualified financial advisers in our Member Advice Centre (MAC) can help you with:
- retirement planning strategy,
- investment choice,
- protecting your family and assets with income protection and life insurance,
- salary sacrifice and government co-contribution,
- combining your super funds,
- accessing age pension benefits from the government.
Again, there is no additional cost for this service"

Sounds to me like they are providing a very broad range of advice (including super consolidation) to some of their members for "free", which is ultimately being paid for by the majority of "fee for no service" members.

I doubt it would vary much from one industry fund to another. Just a suggestion though, can you please stop calling these people 'union fund advisers'. A more appropriate term is 'sales people' or 'retention officers'. Industry super funds have zero interest in financial advice. These people are merely a tool to stop outflows. Just like all the other tools they use, like expiring authorities from independent advisers, preventing members from paying for advice from their super using an adviser outside the fund, hiding withdrawal forms from their websites, lobbying the Government for higher levels of red-tape for independent advisers and less for their own sales people etc. etc.

no one cares or listening... BUT they should! Just a disgrace how there is an unfair playing field

yawwwn.... seriously guys, move on with your life.

Correct headshaker, time to move on.

Well you're entitled to argue against anything in life you think is unfair - just letting things go is not the answer for all

So, you other Headshakers are employees of these funds and just don't want to hear the reality of the disgraceful inequity ?
If you both would move on and allow the educated and important debate to continue thanks.

Yep typical young person's pathetic apathetic attitude on anything that doesn't immediately interest their 2 second attention span, especially if their own income is secured by someone else paying the wage bill. But throw up something that they can be 'offended' by, and you have never seen a more vocal vicious band of gutless keyboard warriors generally regurgitating the same crap they have been fed by others over the years with no original thought in their otherwise empty head.

Blah, blah, unfair, how do I pay for my business class airfares and my new BMW. Advice should be affordable to those that need it and not limited to those that have a couple grand to pay for it

BMW? You're such a pov.

Even with subsidized fees across the membership base, industry funds have a proven track record of outperforming retail funds.
Put a line in the PDS that 0.1% of your admin fee pays intra fund advisers wages which you may or may not use...but you can if you choose to and it won't cost you any more
Case closed, move on, nothing to see here.

Where did you pull that 0.1% from (and it is charged year after year any many members never get a service and they can not opt out) ?

Actually, to the 31 Dec 2019, there were 28 super funds that outperformed Australian Super, most of whom were retail funds. Facts please. Plus returns on funds has absolutely nothing to do with members of default industry funds being hit up for advice fees without informed consent. More like defending the indefensible.

Yes Wilddog, disclose it is the first step, then ensure that the intra fund advisers adhere to FASEA standards, same as the rest of us, and then we have a level playing field and YES, the best product for the client can be chosen. The problem is they won't be able to meet FASEA standards, where I have a conflict I must not act - that is why they require an exemption. The fact they require an exemption tells you plenty. And plenty of other ways to make advice affordable by systemic and regulatory change. Australia is the king of creating regulatory arbitrage.

You are aware that intrafund advisers are beholden to FASEA and TASA standards also. They provide personal advice on a scoped level and must also produce an SoA.
Intrafund advice merely refers to the funding mechanism (that the cost of the advice is included in the admin fee with everything else members get for their money and may not utilise). For a HostPlus member for example, is it unreasonable that their $78pa includes access to strategic advice regarding their interest in the fund? How much of that $78 would have to be carved out so a member could opt out? I imagine it would be less than a dollar. Per year. The cost of administering the opt out would be higher than the savings for members.
Are these the sort of members you are worried about missing out on as clients? The is a market for different tiers of advice, and I suspect this is not yours, so why the angst?

Well, there are a few problems with what you have written there Ken.
1. Intra fund advice does not refer to the "funding mechanism". The ASIC definition is 'types of advice that a super Trustee can give to members of the fund (where) the cost of advice is borne by all members of the fund'.
2. So it's ok for an ISN Fund like Hostplus and so on to clip off a few bucks under the admin fee and not do any advice for most members - ever - but this is not ok for Advisers or anyone else to do that? Not a level playing field then is it? Didn't we just go through all that pain in the RC?
3. Based on your analysis, if it is only $1 per year, then a Member should be able to get an SOA for that price. That right? No it's not is it? Their current model only works if everyone pays and some get service. The Industry Funds cannot service all their members. That's a problem.

Ken the $78 is the headline member fee - look at an Annual Report you will see total admin expenses run around 0.3% to 0.4% per annum of FUM. Hostplus had 104M in admin fees against 25B of FUM ( excluding the Investment fees). It is mischievous that they advertise this way.

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