Super trustees will be able to advise members on topics beyond their interests in the fund after the government finalises its response to the Quality of Advice Review.
Minister for Financial Services Stephen Jones has given his strongest indication yet that he is open to a more radical expansion of intra-fund advice to include a range of topics including property, debt, spousal and family assets. Traditionally, the controversial model, under which advice is charged to the collective membership of a fund, has been confined to an individual’s holdings in the fund.
At an FSC event in Sydney on Monday, Colonial First State superannuation CEO Kelly Power asked whether the scope of intra-fund advice would likely change as part of the government’s response to the QAR.
Jones replied: “If all I wanted to do was fiddle around with, or clarify, the definition of intra-fund advice, I would have done that. That would have been an easy path. Some were suggesting I should do it that way. [But] I don’t think just fiddling with intra-fund advice is going to get us to where we need to be.”
He confirmed funds will be able to do “more than we currently understand as intra-fund [advice]”, concluding an expanded model would “make sense”.
While he conceded that free information exchange between funds and government agencies like Centrelink and the ATO remained a challenge, Jones said allowing funds to advise on a broader range of topics was more “in tune with households” and the way most consumers make financial decisions.
He singled out residual mortgages and the eligible pensions or welfare entitlements of family members as examples of topics currently precluded by the narrow definition of intra-fund advice.
The comments indicate the government is warming to the model favoured by QAR lead Michelle Levy, under which “non-relevant providers” – that is, individuals who are not qualified as professional financial planners – can give advice to consumers on a range of topics beyond superannuation to consumers.
Safer sandbox
However, there is no indication Jones will support Levy’s suggestion of a “good advice duty”. He also reiterated that the expanded role would, at this stage, only be granted to super funds and not other institutions such as banks and insurers.
“It’s a much safer sandbox to progress these things than banking or managed investment schemes or all of these other areas that have different arrangements in place.”
Jones said the super industry is the best option to use as a regulatory sandbox for these changes because of the safeguards currently in place.
“That capacity to compensate where something’s gone wrong is always going to be greater in an RSE [registrable superannuation entity] than it is when something has gone wrong with an individual financial planner, just look at Dixon as example of that,” Jones said, pointing to the fallout of Dixon Advisory going into voluntary administration meaning it won’t be able to pay out compensation to victims.
“We can’t design an absolute full proof system in this area, but what we can do is ensure the whole ecosystem has the safety nets in place.”
The government still needs to make a final decision on the scope of information provided under this re-jigged intra-fund model, the level of competency needed, and how it will be charged.
“If its general information that any institution should provide to anyone that’s probably with current arrangements that can be charged across the fund,” Jones said.
“But if its more bespoke, that is applied specifically to an individual member of that fund, then an individual charging arrangement would be more appropriate, but I’ll have to work through all the details and boundaries of those things and what that looks like.”
He said the government would consult “meaningfully, but not endlessly” on these proposals.
An integrated ‘good advice’ delivery model within the structure of an existing superannuation fund lends itself to bias.
The reality is if you have vertically integrated the delivery of a service which offers additional value in related areas, then the research tells us that the advice service given will be construed in a fashion which favours the preferential treatment of the core product – in this case, Superannuation with the Super Fund.
When it comes to Retirement Planning, scoping in the Age Pension assessment for giving advice in this area, what happens if it is discovered in the process of advice formulation that a client with $1m Super balance is best served with an Allocated Pension at competitive costs, of which the Super Fund doesn’t offer or cannot compete on?
What then? A compromise in the ‘best interests’ of the client to subsist to a lower level of ‘good advice’ and deliver an inferior outcome compared to what’s possible?
Little thought has gone into this approach by the Minister – clearly a political agenda to seemingly woo the Super Funds into an investment into ‘nation building’ in exchange for more ‘advice scope’ to generate additional revenue streams.
And the client suffers. Back to the Future anyone?