Government outlines intra-fund advice

Financial planning industry bodies have welcomed the release of long awaited clarifications on definitions of ‘intra-fund advice’ as part of broader reforms.

Thursday’s (8 Dec) government announcement confirms that intra-fund advice will be subject to key FoFA regulatory requirements.

However questions of transparency remain because intra-fund planners still don’t have to disclose fees.

Broadly, superannuation trustees will have to comply with new rules to ensure intra-fund advice is provided in member’s best interest and at a reasonable cost.

Government believes these requirements will deliver better access to limited financial advice with robust protections.

In a statement it cited ASIC research, which concludes that many Australians, particularly those who have never accessed advice, want piece-by-piece or simple advice, rather than holistic advice.

“The Government has acted to remove the regulatory barriers to the provision of simpler forms of financial advice by ensuring that financial services providers, including financial planners and superannuation funds, can provide single issue or “scaled advice” while still meeting their regulatory obligations,” said the statement.

“The provision of scaled advice will increase access to advice and open up new consumer segments to the industry.”

In the last 12 months only one in five Australians received financial advice and government believes a contributing factor is the gap in the financial advice Australians most commonly want and the “holistic” advice model that is available.

Intra-fund advice is often provided as scaled advice by superannuation funds to their members.

The Government has already accepted the recommendations of the independent Superannuation System Review (the Cooper Review) that intra-fund advice can be collectively charged by superannuation trustees to their members and not be subject to provisions such as opt-in.

“Today I’m announcing new rules that superannuation trustees will have to comply with to ensure intra-fund advice is provided in member’s best interest and at a reasonable cost,” said Assistant Treasurer and Minister for Financial Services and Superannuation Bill Shorten.

Intra-fund advice will cover any general advice or personal advice provided within the sole-purpose test.

However, there will be new restrictions on the types of advice that can be provided under intra fund advice rules.  Specifically, the following are excluded:

• Advice relating to whether the member should consolidate their existing superannuation accounts;
• Advice to switch the member away from the superannuation fund into another superannuation fund except to the extent the advice relates to moving the member from an accumulation product into a retirement product offered by the same registrable superannuation entity;
• Advice that contains recommendations in relation to financial products that the member holds outside of superannuation;
• Advice in relation to investment choice outside of the trustee-prescribed investment options.

“Intra-fund advice will be subject to key FOFA regulatory requirements, such as the best interests duty, thereby promoting a level playing field with other forms of financial advice,” said Shorten.

“In addition, this definition provides safeguards by restricting the types of financial advice that can be provided under the guise of intra-fund advice.”

The delivery of scaled advice will be supported by the development of regulatory guidance by the Australian Securities and Investments Commission (ASIC).

This guidance will outline how scaled advice can be provided in accordance with the regulatory protections in the Corporations Act.

Dante De Gori, general manager, policy and government relations at the Financial Planning Association, said the clarification on what constitutes intra-fund advice was a positive step toward creating best practice financial advice.

“However, these new regulations still allow superannuation funds to charge indiscriminately and invisibly for their intra-fund advice,” he said.

“The FPA believes that any fees for intra-fund advice must be transparent to fund members.

“As long as the government allows intra-fund advisors to avoid disclosing fees, inequities will remain within the financial planning industry and those most affected will of course be the clients.”