Temporary amendments to regulation that reduce compliance for advisers providing advice on early access to superannuation during the COVID-19 pandemic are being received as a welcome, yet largely impractical, step in the right direction towards more efficient and affordable advice.
The measures could pave the way for further reforms aimed at reducing the compliance burden on advisers – but only if the latest measure is handled the right way.
“It’s a small step in the right direction to reducing the cost and complexity of advice,” says Tom Reddacliff, CEO at Encore Advisory Group. “If we do this well then we might be trusted with more steps and a little bit more relief in terms of red tape.”
The amendments, announced yesterday, contain three measures: relief to facilitate advice on early access to superannuation; relief to extend the timeframe for providing critical statements of advice, and relief to enable a record of advice to be given in certain circumstances.
Reddacliff believes the way advisers wield the extra lee-way to use ROAs for early access advice will be watched very closely.
“If we get this right the ROA relief might be extended and we could have more and more scenarios where advisers can use ROAs instead of SOAs,” he says. “But we’ve got to do it well and earn the right – then we’re in a strong position.”
Handling the relief provisions well, Reddacliff explains, will be a matter of staying within the intent of what’s been announced.
“We’ve got a history of looking at things in black and white and wanting things spelt out in a prescriptive way,” he says. “But now you have to use judgement and a risk management framework.”
The changes announced yesterday were foreshadowed at the recent Conexus Financial retirement conference by assistant finance minister Jane Hume, who said the government was “putting its head around” making advice more affordable in the crisis environment.
‘It’s just not enough time’
The parameters around ASIC’s regulatory relief measures have sparked consternation among advisers struggling to understand how the provisions fit their working model.
That the $10,000 early access advice fee must be capped at $300 will likely mean most advisers are providing it at a loss. Researcher Investment Trends report that providing scaled advice to new clients takes a little over four hours, while existing clients still takes just under three hours.
“Dishing out advice in an hour is nearly impossible,” says adviser Sean Yeo from Capital Financial Planning in Perth. “You’re definitely spending more than a few hours.”
Yeo says that while he welcomes any move to reduce compliance and doesn’t blame ASIC “in any way”, he doesn’t anticipate using the provision much.
“You wouldn’t have the ability to conduct reasonable research for a new client,” he says. “It’s just not enough time.”
UNSW law lecturer Marina Nehme, who completed her doctorate on ASIC enforcement strategy, worries the change could lead to poor advice being doled out.
“The drawback is the quality of advice that will be given, especially as the maximum fee… is $300,” she says.
Nehme hopes the ROA provision, however, will ensure the advice is of a suitable standard.
“That will provide some accountability for the financial adviser to ensure they provide the best possible advice under the circumstances,” she says.
In a statement released yesterday, Senator Hume warned that the provisions be accompanied by “additional surveillance activity” by ASIC.
Bingo! We’ve hit a conflict…
Reddacliff harbours concern about the potential conflicts of interest that superannuation fund advisers will face as they help clients decide whether to pull tracts of cash away from their employer.
“Obviously what’s announced is heavily targeted towards the intra-fund advice,” he says, noting that intra-fund advisers will need to walk a fine line.
If ASIC suspects conflicts are warping this advice, he says, it could cruel the industry’s chance for further reform. It’s largely on fund advisers, Reddacliff believes, to get it right.
The potential for conflicts is also something Yeo worries about – especially given the added constraints laid on advisers by the standards and ethics authority.
“The danger here is that advisers in super funds might be conflicted,” Yeo says. “It’s like, Bingo! We’ve hit a FASEA conflict of interest because the super fund doesn’t want you to facilitate a withdrawal.”
Consumer group jabs
Who should even be providing consumers with advice around early access withdrawals has been a bone of contention lately, with consumer group CHOICE telling people to stay away from financial advisers.
“People who are in such hardship that they are considering seeking early access to super should not be paying for financial advice, especially where there’s a risk that advice is conflicted,” says Erin Turner, CHOICE Director of Campaigns and Communications.
Instead, Turner tells Professional Planner, people considering early access should contact Financial Counsellors Australia (FCA), which provides a free service to people who are in debt or not able to meet their expenses.
“Financial counsellors offer a free and independent service that is best placed to help people in financial difficulty,” Turner says.
While FCA provide a much-needed service, they may have their hands full; the ATO reports over 700,000 people have applied for early access in the past few weeks, while FCA reports that it helps 125,000 people “face-to-face” per year.
FCA chief executive Fiona Guthrie, who is also a board member at CHOICE, was more measured about the role advisers should play, telling Professional Planner that the important thing should be that people get some type of advice and don’t make a decision they come to regret.
“Some financial planners will also be able to provide this advice,” she says. “For people who have very little money, financial counselling may be more realistic source of advice because it is a free service.”
Craig Meldrum is bang on the money here. And, wait for an adviser to get sued at some point in the future for facilitating the withdrawal of $10K today that reduces the retirement benefit available to the client by $100K. Don’t think THAT scenario won’t occur. Want to take THAT risk for $300? Good luck!
An interesting aspect here, where there has been no comment whatsoever from Government or the regulators, is the juxtaposition between the regulator trying to find a small efficiency to help advisers help their clients and the legislative imposition of the FASEA requirements. The standards do not allow for shortcuts. It was touched on in the story about the apparent conflict that intrafund advisers are faced with under standard 3. But consider standard 4 and the need to gain the client’s free, prior and informed consent before acting, standard 5 where the adviser still needs to go through all the steps to ensure any recommendation to withdraw the $10,000 from super is in the clients best interests (not just for now, but taking into account their broader needs and goals and likely future circumstances as required under standard 6). And the adviser still needs to ensure the client understands the benefits, costs, risks involved and have grounds to be satisfied, coupled with the need to model the impacts on affordability of life premiums and future retirement benefits. There are no shortcuts on fact finding where full information needs to be provided by the client, even though this is just about accessing super. And then we circle back to standard 1, “thou shall not try to circumvent the code.” Try to do all that for $300. It really provides confused messaging to the sector when intrafund advice models are given more flexibility but professional advisers are completely hamstrung by regulation which is not designed to assist clients with immediate and critical needs.