The Delivering Better Financial Outcomes bill could end up incentivising advisers to pull client money out of super funds, instead of building a better relationship between the two financial services subsectors.

A submission to the Senate Economic Committee’s review of the bill by the Joint Licensees Group, led by WT Financial Group CEO Keith Cullen, was written with a sole focus on the bill’s failure to address shortcomings in the SIS Act around how superannuation trustees can deduct financial advice fees from members’ accounts.

“In the current form of the bill, the law changes will strain the collegiate relationships between financial advisers, AFSLs, and superannuation funds – and super fund members,” the submission said.

“Super funds, if charged with an expanded monitoring role, might challenge, or question the fees paid by members to their advisers, potentially leading to conflicts and a sense of distrust between these parties and between funds and their members, especially when clients and advisers inevitably experience the difference in interpretation and/or justification across funds.”

DBFO legislation was tabled in March and drew heavy criticism from the advice sector after failing to address previously flagged shortcomings to how advice fees are charged to members’ accounts. The Joint Association Working Group urged Minister for Financial Services Stephen Jones to act so the “hot mess doesn’t turn into disaster”.

Last week, new ASIC Commissioner Alan Kirkland, who will be speaking at Professional Planner’s Licensee Summit next month, said the regulator won’t expect super funds to audit every piece of advice provided by advisers to members.

The Joint Licensee Group submission noted that advisers and licensees would have to provide detailed documentation relating to fees and the scope of advice, across a “plethora” of non-industry standard forms, templates, checklists that get prescribed by individual super funds further adding to the complexity of the advice process.

“One can envisage higher balance members (those with complex financial planning needs in particular) being driven to SMSFs out of frustration,” the submission said.

“The enhanced role of superannuation funds in monitoring and approving adviser fees creates a power dynamic where a limited number of funds might adopt an ‘anti-advice’ posture and potentially misuse their new supervisory mandate.”

Running away from goals

While the submission said the DBFO legislation might be well intentioned, it said the legislation essentially duplicates regulatory oversight of AFSLs and creates an additional layer of administration, leading to the opposite of the government’s intention of reducing the cost of advice.

“The increased administrative responsibilities and compliance requirements for superannuation funds will lead to higher operational costs,” the submission said.

“These costs will be passed onto members collectively through increased trustee costs, and individually, as financial advisers will have no option other than to raise their fees to cover the added complexity and time involved in getting fees ‘approved’ by super funds.”

Furthermore, the submission noted the increased oversight required by trustees will reduce consumer agency.

“Members who seek financial advice will face additional hurdles in getting their adviser fees paid from their superannuation accounts, as these payments will now require rigorous vetting by the fund trustees,” the submission said.

“This could limit members’ freedom and ease in choosing and using financial advisers. Some funds (quite understandably) may decide the burden of responsibility is all too much and choose to not allow members the freedom they seek.”

In a separate submission the Financial Advice Association pointed to Note 1 to section 99FA of the SIS Act, which states that “trustees are not required to pay the cost of providing financial product advice in relation to a member under this subsection”, adding it would prefer to see this fixed in law and not via an exploratory memorandum.

“Changes to the [memorandum] will not address the prospect of significant variation existing in the marketplace and inefficient processes becoming dominant,” the FAAA submission said.

“We would not like this to be applied in an arbitrary manner. The position that the trustee takes with respect to the payment of fees should be applied consistently and be made very clear up front.”

All rosy in super land

Both the Association of Superannuation Funds of Australia and the Super Members Council argued for speedy passage of the bill, with the latter proposing the bill’s commencement date be three months after royal assent rather a year.

Both associations supported the bill codifying as law what they said are existing obligations, while ASFA wanted to maintain a risk-based approach that focused on “reasonable expectations to compliance monitoring and assurance”.

“With this in mind, superannuation trustees are concerned to ensure they have certainty in continuing to discharge their oversight obligations around the deduction of advice fees from members’ accounts, and that no unintended consequences result from the introduction of these provisions,” the ASFA submission said.

“To provide comfort for trustees in this regard, ASFA would support clarification in the form of a clear statement to this effect in the explanatory memorandum.”

However, AustralianSuper took a stronger stance on the bill. Although expressing support for passage, it also wants consent forms to require information that will confirm the extent to which the advice relates to the member’s interest in the fund.

“Should the minister exercise the proposed power to approve a form of request or consent, we ask that consideration be given to mandating this information,” the AustralianSuper submission said.

“We also think that the legislation would benefit from greater clarity that in the absence of an approved form of request or consent, superannuation funds can continue to use their own consent forms – which may contain more detailed requirements – provided that the minimum content requirements in the law are included.”