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Editorial: Ebony and ivory
Can we ever expect financial advisers who derive a substantial proportion of their income from commissions to recommend that their clients switch to an industry superannuation fund?
Over the past month we have been witness to a good deal of argument around the decision by AMP Financial Services to remove a number of industry funds from their recommended list on the basis that there had been a distinct lack of interest in them.
The executive chair of Industry Fund Services (IFS), Garry Weaven, almost immediately attributed the AMP Financial Services’ decision to the fact that the distinct lack of interest exhibited by financial advisers working for AMP was because industry funds do not pay commissions.
Weaven is, of course, right. When AMP Financial Services decided to include the industry funds on its recommended list back in 2004, it clearly understood the reality, and its decision this year to remove those funds simply reflects the continuing disconnect that exists between industry funds and many financial planning organisations.
But this disconnect is owed to both sides. While the industry funds can point to their essential distaste for commission-based arrangements with financial planners, AMP can in turn point to the manner in which it is often difficult to compare industry funds against their retail and corporate counterparts.
This was reflected in a statement attributed to AMP in which it described industry superannuation funds as being “opaque” because they invest in unlisted assets. AMP might equally have pointed out that industry funds fly under the radar on a number of other issues.
However, the “opaque” claim by AMP prompted Weaven to reiterate his claim that the removal of the industry funds from AMP Financial Services’ recommended list was commercially motivated.
Of course, the reality confronting financial planners is somewhat divorced from the rhetoric that has surrounded the debate between AMP and IFS.
The rules that apply in the new choice of superannuation fund environment, as overseen by the Australian Securities and Investments Commission (ASIC), dictate that financial advisers cannot simply ignore industry funds when they are making recommendations to members.
Irrespective of how financial planners are paid, they have an obligation under the relevant regulations to provide their clients with a full explanation as to why one fund is better than another, and that includes a full explanation of the benefits offered by particular industry funds.
Any financial planner who doubts the importance of complying with these regulations need only consider the number of actions launched against planners with respect to super switching and the outcome of ASIC’s recent shadow-shopping survey, which uncovered a number of shortcomings where switching advice was concerned.
Then, too, there is the reality of the multimillion dollar advertising campaign that has been funded by the industry funds, and which has already been seen to have given industry funds a clear advantage in the immediate post-choice environment.
So how much does it matter that a group such as AMP Financial Services does not have industry funds on their recommended list? Arguably, very little. It seems simply to be a matter of principle.
While Weaven makes some good points in his criticism of AMP Financial Services, he might consider how many advisers employed by IFS recommend that their clients consider AMP Signature Super.
AUTHOR
Mike Taylor
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