Super funds are generally assumed to be in the box seat when it comes to providing accessible and affordable advice to their members. As fiduciaries for the retirement savings of most adult Australians, it seems natural that they should also be the providers of advice, particularly around retirement issues.
But funds are hamstrung by intrafund advice regulations that impede their ability to deliver advice that considers many relevant aspects of a member’s financial circumstances.
A lack of access to advice has been highlighted frequently by the Minister for Financial Services Stephen Jones who recognises super funds are required on one hand to deliver the best retirement outcomes for members, particularly through the Retirement Income Covenant, but on the other hand can’t effectively give members the advice that should be part of that solution.
Jones says there are around five million Australians currently in or nearing retirement. Getting advice to so many people is a big task and is unlikely to be achieved to everyone’s satisfaction.
The Quality of Advice Review has described an alternative regulatory environment that could make it easier for funds to deliver advice to members by expanding the definition of “personal advice” and allowing funds to use “non-relevant providers” (people who are not financial advisers) to deliver that advice to fund members.
On face value, the protections available to individuals who receive advice from a super fund might seem similar to the protections available to consumers of advice from financial advisers.
After all, even if an individual providing personal advice through a super fund isn’t a financial adviser, they operate in a regulatory environment that requires the fund to act in its members’ best interests.
But not everyone is sold.
“That doesn’t do it for me, to be honest,” Super Consumers Australia director Xavier O’Halloran tells Professional Planner.
“Also, the best interests duty is different. The best interest duty for financial advisers is to an individual. They’re literally acting in your best interest when they’re thinking about the product that’s appropriate, when they’re thinking about your overall strategy and engagement.”
O’Halloran says the best interest duty for super funds is to act in the best interest of members – and members as a whole.
“You can justify a lot within that kind of definition,” O’Halloran says.
“You can justify collectively charging, for example. Even when people aren’t using a service, you can just file a cross-subsidisation. It’s a very different duty, and there have been areas where that has not worked out in the past.”
O’Halloran points to life insurance, where a product could have been cheaper for members overall because “they had this restrictive definition that applied to this small percentage of members, but it meant if you’re a casual or part-timer, you got a really bad policy”.
“It didn’t protect those individual cohorts,” he says. “We’ve been concerned that the same could happen again, without the right protections around how this advice is delivered by super funds.”
‘Jury’s still out’
O’Halloran says it’s simply not clear if the QAR will lead to better advice for super fund members, and there’s a chance that it won’t.
“The jury’s still out,” he says. “There’s obviously a strong push from parts of the industry for the full adoption of the Levy recommendations. Listening to the minister [at the Conexus Financial QAR roadshow], though, his vision seemed to be more that there’s some low-hanging fruit where there’s agreement between all parties that there’s a need for reform and those types of things that are around simplifying disclosure statements.”
O’Halloran says the “low-hanging fruit” has support from the consumer groups.
“We’ve always supported that; we’ve never seen disclosure as a particularly useful consumer protection,” O’Halloran says.
“Particularly, what SOAs have become and turned into is definitely not a useful consumer protection.”
O’Halloran says super funds are well placed as potential providers of advice because of the direct relationship they already have with members, but an examination by SCA of the advice provided under intrafund rules left it a little underwhelmed.
“A lot of it was really directed towards people making additional contributions,” he says.
“A lot of the guidance around how much you need to save for retirement seemed to benchmark around the ASFA retirement standard.”
He adds this is not appropriate for all members and may lead to people either over-saving or losing confidence that they’re ever going to have enough and instead disengaging.
“But we did see other areas where we thought funds are doing a bit better,” he says “Some of that was around insurance and getting people to help them understand what their insurance needs were.”
O’Halloran says intrafund advice being of the highest level of quality is the key focus the consumer group has when it comes to the advice review proposals.
“There’s an inherent conflict in all of this,” he says.
“Super funds want to retain their customers… but in some cases, they may not have the best product, they may not be the best performer, and so how do we make sure that people are still getting good advice with those concerns hanging over the advice that’s delivered?”
Delivering better advice to members of superannuation funds is also on the mind of Adrian Gervasoni, executive manager of advice solutions for Industry Fund Services.
IFS is an AFSL and authorises individuals as advisers – relevant providers – to provide advice to super fund members.
Those advisers are often embedded in the funds themselves, but they typically deal with fund members whose needs exceed what can be met within the current constraints of intrafund advice.
Gervasoni says super funds are natural providers of help, guidance and advice to members, “but it depends on what we mean by financial advice”.
“If it is about how to help a member make the most of their superannuation, how to help them understand how their retirement might look, [and to understand] there’s a context that needs to be framed in, yes,” Gervasoni says.
“Super funds providing advice on just any topic? No, because they won’t be good enough anyway to do it. So commercial drivers will see that they’ll fail at it.”
Gervasoni says help, guidance and advice can’t be removed from the purview of super funds because it is too essential.
“We see there’s a limit to what product design and investment management can do,” Gervasoni says.
“Members will make decisions during highly volatile market periods. A fund that doesn’t have a compelling [advice] offer – and they probably don’t at the moment – will see a higher incidence than what we should be comfortable with [of members] switching to cash. That’s a failing.”
Beyond realistic means
Even if the definition of personal advice is expanded so super funds can deliver help, Gervasoni says guidance and advice to members that is useful there will still be issues that exceed the fund’s capability or desire to deliver.
In those cases, “the simple thing is to say you decline to help, right?” Gervasoni says.
“You shouldn’t try and cobble together some half-arsed solution,” he adds.
“If the need is there, and it’s clear to you what their problem is and how it’s best solved, in that it’s not solved by something you can offer, then, again, I say commercial drivers will have it that you still want to protect the consumer experience.”
Gervasoni says funds want to be able to direct members in the right direction.
“From a regulatory standpoint, as long as you say I can’t help you, you probably tick the box. But most funds wouldn’t be happy with that,” Gervasoni says.
“That’s why you see a number of them have these referral panels and more and more of our clients wanting to do that.”
Gervasoni says reasonable volumes of fund members are currently being referred to external financial advisers for advice that the funds themselves can’t or don’t offer. But a referral doesn’t automatically mean a member receives advice.
“It’s easy to understand why,” he says.
“If I sent a member with $200,000, in super – and that’s a pretty big balance in our world – to a suburban practice who otherwise is solving portfolio construction and advice needs for those with larger sums of wealth, they can’t do anything with this member. They’ll maybe have a discussion with them, but there’s no advice often provided. That’s a problem.”
Gervasoni points out the commercial reality that those advice practices can’t financially justify servicing those low balance clients.
“It’s not portfolio construction, it’s not tax advice, it’s not hugely complex advice that most advice practices have had to resize and focus on to be profitable,” Gervasoni says.
Gervasoni adds for some funds, including those that IFS works with, financial advice is “something they’re doing that they would prefer not to be doing”.
“But there’s no one else that will do it,” he says. “And they kind of have to, because there’s certain questions even in a call center that you can’t answer without an advice license.”
Gervasoni says the advice review proposals are likely to lead to a spectrum of available advice, and whether the advice can be delivered by a non-relevant provider or not will be judged on a case-by-case basis.
“We’re not going to allow the license to dictate what a really good interaction will look like,” he says.
“By ‘really good’, it means that there’s a defined outcome we’re trying to solve for, that’s going to improve someone’s, ultimately their retirement outcome…and then we build the governance model and the education requirements for that.”
Gervasoni says that whatever ultimately emerges from the QAR and how it affects super funds, “as a profession, the onus is on us to exercise more judgment”.
The potential rules wouldn’t require non-relevant providers to be professionals – they’re not required to meet education and professional standards.
Another distinction between the two groups is that only relevant providers may charge a fee for the advice they give, but Gervasoni says the definition shouldn’t hinge on a fee payment, rather it should be based on what’s best for the member.
“We need to define what simple or not [simple] advice is, or simple scenarios,” he says.
“That’s actually the work that has to be done. Any other model will be too full of compromises. We can work this out, we absolutely can. It’s mostly about what can call centers do and I come back to… what’s your motivation?”
Gervasoni says if the motivation is to “move product” then delivering advice should be made more difficult.
“When advice functions were used as distribution channels, that’s what got banks and others into trouble,” he says.
“The same potential for problems exists in super funds as well, so we shouldn’t pretend that we’re holier than thou on this. If that’s your motivation, you should find it hard.”
However, he says if the motivation is to genuinely solve for common questions efficiently then there has to be some level of professional judgement exercised.
“Otherwise, we will see this process still be full of governance and process that are not really solving for the underlying consumer need anyway,” he says.
“I see advice models all the time that are technically compliant but deliver no end benefit. And that’s the regulatory construct we’ve got right now.”
