Human resources departments, trustees, and other in-house staff involved in managing their company’s super arrangements are now on notice that being helpful to employees and super fund members may land their employers in very hot water.
Companies face a dilemma, whether they run the super fund in-house or outsource to a third party platform provider. Even seemingly innocuous comments such as “this investment choice is more popular than that” or “it’s a good idea to top up your company super”, may be construed as giving financial advice, which is a big no-no without a licence under the FSRA.
But not giving advice is not an option. Employers are under increasing pressure to provide their workers with the tools needed to deal with the growing mound of financial complexities they face. Investment choice, and in some cases, fund choice, is on the increase. Employers are giving their employees choice, but are they equipping them with the right tools to manage that choice? And are they innocently wandering into advice?
Under the terms of ASIC Policy Statement 123, employers were exempted from requiring a licence where any ‘incidental advice’ was provided within the context and confines of a non-public offer fund, such as the traditional company-sponsored fund. So if the information were limited to investment choice issues, it was fine for in-house superannuation staff to be nice and supply it, no need for a licence.
As it currently stands, all that will change under the FSRA regime. So far, these exemptions do not apply. It will be naughty to provide any such information without a licence and employers are likely to face stiff penalties where there are breaches.
There’s merit in the FSRA approach. Basically, it enforces the commonsense idea that, as an employer “you can’t supply the choice ‘gun and ammunition’ and then give naughty but nice advice, or step away and deny access to the relevant instruction and safety manuals”.
So what’s the solution? Companies have two choices — obtain a licence and provide superannuation staff with the appropriate training and accreditation, and they can continue to provide this sort of information to employees. Or transfer the responsibility by outsourcing all superannuation functions.
Unless companies are well down the required track by now, they’ll struggle mightily to meet all the requirements by the time FSRA fully comes into force.
The outsourcing route has been more popular, but has been largely centred around getting rid of the administration function and expanding the range of investment choice. Not enough has been done in the area of advice.
Several significant risks are attached to taking this course and should be carefully weighed up and dealt with. The first is the threat to corporate reputation. Will the new superannuation provider deliver the quality and range of services members require? After all, the company’s name and image is still firmly glued to the way it provides employee benefits.
And do the services adequately cover the advice side? Is there too much emphasis on the outsourcing platform and not enough on advice and on-going service, especially in light of FSRA?
What about independence of advice, particularly if the new provider promotes their own or associated platform and investment products?
What if growing funds under investment management is their key business driver rather than advice, and the employees are, in reality, seen as prime targets for their investment products?
How can companies ensure that exposing their employees to such organisations won’t result in also exposing them to high pressure product selling, which employees could very reasonably think has their company’s stamp of approval? This feeling that there will be ‘barbarians at the gate’ is top of mind for many companies wrestling with this dilemma.
Product pushers are hard to control once they get inside. Employers must make sure that whoever provides super services on their behalf doesn’t trample the goodwill a company generates by providing high quality employee benefits.
So if a company brings in an external financial service provider, management should set very clear boundaries as part of the deal. “No go” zones should be specified and any activities that may become distractions, curtailed. Most importantly, proper consideration should be given to the right mix of outsourced platforms, investment management and advice. Simply buying an off-the-shelf package is not necessarily the right answer in all circumstances.
Progressive companies are finding that taking a holistic approach to addressing the financial education, guidance, investment, administration and advice needs of their people works much better. They focus on forming strategic alliances with one or two reputable providers who can help them place the emphasis on providing useful, tiered financial advice by licensed professionals, tailored to the needs of the employer and the employee. In this workplace advice model, superannuation as a component has been placed in the right context and tucks neatly into the FSRA framework.
No more risking the nasty penalties for being naughty by being nice.
— Tony McDonald is managing director, Snowball Group
