The IUS/Super Review survey published in our June edition confirmed something that has become increasingly evident over the past three years — the provision of financial advice now represents an integral part of the superannuation equation.
The IUS/Super Review survey started asking about the relevance of financial advice to superannuation two years ago, and in the succeeding 24 months the opinion of respondents has increasingly erred towards financial advice being an integral and highly necessary part of the superannuation industry.
Of course, the bottom line of any discussion about financial advice in the context of superannuation is the manner in which fund members pay for advice — whether on a fee for service basis or by way of commissions. Then, too, some funds retain salaried financial advisers.
For its part, Super Review does not intend to become embroiled in the debate about the merits of fee for service arrangements versus commissions. Rather, it is concerned about the ability of superannuation funds to provide essential information to members without it being deemed to be advice.
In early June, the Association of Superannuation Funds of Australia (ASFA) wrote a submission to the Parliamentary Joint Committee of Corporations and Financial Services dealing with the proposed Corporations Legislation Amendment (Simpler regulatory System) Bill, 2007.
That legislation, in essence, seeks to reduce the regulatory burden that confronts the financial services industry without at the same time reducing consumer protections.
In its submission, ASFA argues for a reconfiguration of the financial product advice regime to allow superannuation funds to more easily communicate with their members about issues such as additional contributions, investment and insurance choices, particularly with respect to protecting consumers when acquiring a new fund or moving monies between funds.
ASFA argues in its submission that funds should be able to provide this “within product” advice without unnecessary interference by Corporations Act requirements.
It is to be hoped that the Parliamentary Committee takes serious heed of the ASFA submission in circumstances where it is plainly sensible and advisable for superannuation funds to be able to keep their members appropriately and accurately informed.
In an environment in which the average superannuation fund member is being bombarded with information via competing television advertising campaigns funded by banks, retail and industry funds, there is a need to clearly define the provision of basic facts about particular funds from the provision of broader advice about financial products.
Superannuation funds need the ability to provide the basic facts about their core service offerings in circumstances where, despite generally higher consumer awareness, most superannuation fund members could not tell you with any certainty how much money they have in their super balance, the type of insurance offering their fund provides or whether any other benefits may be accessible.
If anyone doubts the degree to which members are ignorant of what their existing fund provides, they need only look at the outcome of a number of surveys on this very issue and the instances where the regulators have acted against financial planners alleged to have given inappropriate superannuation switching advice.
It is on this basis that superannuation funds should, at a minimum, be able to provide their members with a full statement of their existing account status with the fund plus the insurance benefits and other arrangements that flow from membership of the fund.
Not covered in the ASFA submission but equally important in keeping consumers appropriately informed is the provision of an independent mechanism that allows them to compare ‘apples with apples’ when comparing superannuation funds and the returns they generate.
With the end of the financial year having passed, the differing analyses of the major ratings houses have given rise to some interesting but nonetheless very different assessments of superannuation performances in 2006-07. The only common denominator in the assessments of the ratings houses is that most Australian funds have finished the financial year having generated a further round of double-digit returns.
It is in these circumstances that if the Australian Prudential Regulation Authority really wanted to provide a service to consumers then it would provide them with an independent and objective ranking of relative superannuation fund performances.
In the meantime, we are sure ASFA and the remainder of the superannuation industry will settle for appropriate changes to the Corporations Act that allow for the provision of useful and factual information to superannuation fund members.
