Choice of fund has wrought a number of changes to the Australian superannuation industry, not least of which being an increasing role for financial planners.
Like it or not, financial planners have weighed into the superannuation debate and can often be the difference between a member staying with their existing fund or moving to new arrangements.
Notwithstanding the Australian Securities and Investments Commission (ASIC) continuing its shadow shopping exercise with respect to super switching, there is broad acknowledgement that financial planning must now become an integral part of superannuation.
However, for Neil Cochrane, chief executive officer of industry fund REST, examination of financial planning and what it could offer a fund began long before the advent of choice.
“We started looking at financial planning as long as three years ago and ran a pilot scheme from the beginning of last year,” he said.
Cochrane identified the main reason behind the large industry fund’s foray into financial planning as a lack of member access. He said that prior to adding the service, a large number of members had little to no access of any kind to financial planning.
“Our members’ need was for a very basic type of advice and information and a need for overall support,” Cochrane said. “We wanted to give them that but also wanted them to have financial confidence in themselves.”
The degree to which financial planning has become an integral offering in the superannuation sector is reflected in the attitude of the executive chair of Industry Fund Services, Garry Weaven, who said choice of fund was simply one step in a continuous process of increasing competition in the superannuation industry.
“So there has been a growing interest amongst fund trustees in the need to do something to counter the relentless pressure from sales commission-incentivised accountants and financial planners,” he said. “One way of balancing this is obviously for funds to provide more direct education themselves, including the provision of financial planning and advisory services.”
UniSuper’s examination of financial planning and how its better use could benefit the fund also preceded choice of fund. Paul Murphy, executive manager, marketing and business development, stated that the fund had a very real concern that conventional financial planners didn’t understand particular fund options.
“Many planners work from recommended lists which don’t show member specific options,” he said. “For instance, UniSuper offers indexed pensions, but that information wouldn’t necessarily be passed on to a client looking to switch funds.”
Murphy added that a planner’s commissions had also been a concern, as well as retirement space contestability. He said that the key question was: “How do we keep members, and what is the role of financial planning in doing this?”
However, while many fund experts agree that financial planning must garner an important role in the future of the Australian super industry, there are many who feel that the industry still has a lot to prove.
Greg Healy, director of corporate superannuation at AMP, believes that when it comes to client and investor confidence in financial planners, Financial Services Reform and its intent is on the money.
“There has to be protection for both members and consumers,” he said. “Especially in light of recent shadow shopping issues.
“The question is: Are financial planners using enough due diligence when examining the fund their client would be moving from?”
Healy continued by saying that there needed to be a value placed on the advice given and that it needed to be brought into line with the context of member requirements.
Murphy said that UniSuper shared Healy’s concerns.
“There is no doubt that the financial planning industry has a serious public image problem at the moment,” he said. “However, we accept that there are good financial planners out there. Our only concern for fund members is how they as the consumer can channel into them.”
Perhaps the greatest concern for fund members looking for advice on their current super arrangements is the ability of a financial planner to understand both their current superannuation and financial status. Add to that the concern that they will struggle to understand the advice they are given and you give rise to a situation where the stakes seem high and the margin for error low.
The solution to such circumstances, according to both Healy and Murphy, is a graduated advice model.
“At UniSuper, our advice packages range from the very basic to one-on-one consultations,” Murphy said. “We have qualified advisers, but they are only represented as advising on our own products. If a member has a need for broader financial advice, then they are referred to an external planner.”
Healy added that any advice given needed to have thorough fact finding avenues behind it.
“Under a limited advice model, members obviously have no need for a 50 page statement. That kind of thing just drives up costs,” he said. “However, where thoroughness is required, where a planner is looking to take their client into a totally new super environment, then that is when the full Statement of Advice needs to come out.
“The reality of Australian superannuation is that the majority of Australians are already in good super arrangements,” Healy said. “If a fund member is to switch, then there would have to be significant reasons or preferences behind that decision.”
In the lead-up to choice the industry funds made much of the fact that they represented a low fee option when compared to retail master trusts and that industry funds were not beholden to financial planners remunerated by commission arrangements.
However, Healy maintains that it would be wrong to assume that using a planner equates to the sale of high cost products.
For Weaven the key question is not the quality of advice provided by financial planners but the manner in which they are paid for that advice.
“It is patently obvious that while there are many decent financial planners, there are absolutely no grounds for investors to presume that they will be given good advice,” Weaven said.
However, he said focus had recently fallen on the practice of planners and others taking commissions of up to 10 per cent to place investors in questionable property schemes and there was a danger this represented only the tip of the iceberg.
He said ASIC had made a number of very sensible statements with respect to the questionable nature of charging trail commissions ostensibly for advice while the only advice given is actually to employers rather than employees.
“However, in terms of surveillance and enforcement, I think ASIC faces a very daunting task if they are committed to fully securing an appropriate environment for financial advice,” Weaven said. “For example, there appears to be a clear pattern of bulk enrolments of employees into schemes run by a bank or other financial institutions with whom the employer has recently transacted other business.”
He said this pattern needed to be examined closely by ASIC so that there could be confidence that illegal inducements to employers to bring about employee enrolments in superannuation was not a widespread feature of the industry.
