Super funds have a strong commercial incentive to scale their advice provision to prevent them from switching to one of the retail platforms, which have experienced significant inflows as a result of members leaving industry funds.
But as they build their offerings out, super funds face the prospect of repeating the mistakes that led to the Hayne royal commission – conflicts of interest, potential fee-for-no-service pitfalls in the collective charging of advice fees, and growing complexity that made it hard to get a handle on where everything was going wrong.
But amidst obligations under the Retirement Income Covenant and expected changes via the Delivering Better Financial Outcomes reforms, super funds will be expected to make great utilisation of advice.
In a keynote presentation to the Professional Planner Licensee Summit in the NSW Blue Mountains, The Conexus Institute* executive director David Bell said not every fund wants to take on that complexity, but there will be a “hard or soft directive” for funds to do this.
“They’re actually looking for clear directions, clear solutions, and that’s why I think there’s opportunities for collaboration to sort it out,” Bell said.
“Imagine if every fund had the same simple advice process that actually got refreshed each year with some external industry input – wouldn’t that be amazing, and de-risk it for super fund.
“I also think super funds, it doesn’t get enough spotlight on it, are the ultimate cross-subsidisers…every service is cross-subsidised in some way across memberships and there’s never been much explicit monitoring put on that.”
That could come back to haunt regulators, Bell said, but the primary guardrail against the problems of introducing complexity into an operating model is “excellence in governance”. If that isn’t there, funds are going to deliver poor outcomes – “implicitly or explicitly”.
“If that excellent governance isn’t there, you’re going to see some funds deliver poor outcomes, either implicitly or explicitly, and that’s not good. We’re always pushing hard on the governance aspect.”
The expansion of advice from super funds also poses tough ethical questions, like whether, in what will essentially function as a vertically integrated model, fund advisers will be able to recommend that the member go elsewhere to get their needs met.
“The government won’t go through all this work and say to the super fund industry that it’s optional that they provide these services,” Bell said.
“There’s going to be effectively a directive that they have to put these services in place. They don’t have to put comprehensive advice into place – that’s effectively a value-add retention strategy, but all the advice through super framework, I think that’s going to be required.”
Bell said this will ultimately include vertical integration.
“If you get up to comprehensive [advice] and you’ve got an adviser that’s the same problems, but at a higher level, because if they’re comprehensive they’re gonna have platforms on their APL [approved product list] as well.”
But funds are still the natural providers of mass scale advice, Bell said, particularly as their members retire, when they would benefit a lot more from a relatively simple recommendation than no recommendation at all.
“Of all the entities that are out there, we think that super funds are super highly regulated and they’re probably reasonably well-placed to do that,” Bell said.
“It has to be done really well. You need to get the right regulations, the right framing in place, and probably the most important thing…is getting those off-ramps right. What’s the time when a fund is dealing with their members to say, ‘Look, your advice needs are too complex, you should be seeking external advice and here’s our pathway to assist you into that’.
“There’s a really valuable spectrum there that can be built that will ensure nearly every member gets something that’s helpful for them and appropriate. That leaves lots of space for external advice provision.”
*The Conexus Institute is a not-for-profit think-tank philanthropically funded by Conexus Financial, publisher of Professional Planner.
