THE SOAPBOX EXCLUSIVE INTERVIEW: Cheap financial advice now available – what does it mean for consumers?

Superannuation funds are now providing cheap (and in some cases, free) personal financial advice to super fund members with the blessing of the Australian Securities and Investments Commission (ASIC).

In early July 2009, ASIC announced that it’s okay to provide personal financial advice over the phone, via email or face-to-face without conducting a full ‘know your client’ process provided that the advice relates only to the member’s account within the super fund. Such advice is being labelled ‘intra-fund advice’.

For example, provided your super fund holds an Australian Financial Services licence, your super fund can advise you on switching between investment options, whether to make additional super contributions and the level of insurance cover that you hold with the fund. Under this limited exemption, your super fund cannot provide advice on switching super funds, or advice on financial products outside super, or advice on general retirement planning.

The financial planning industry is aghast at this radical incursion into their market space, but the rest of the super industry is supportive of the move because the limited advice option is designed for those who do not sufficient savings to justify the cost of a full financial plan.

SuperGuide has secured an exclusive interview with ASIC’s head of superannuation, Louise Du-Pre Alba. Her answers to my questions, including the issue of independent advice, are set out below.

Access to affordable advice

Trish: ASIC has released some significant guidance for super funds to provide a cheap financial advice option for super fund members. As the regulator of these new advice rules, can you explain what these new rules will mean for consumers, that is, for Australians with super fund accounts?

Louise Du Pre-Alba: The objective of the intra-fund advice model is to give members greater access to affordable advice about their own interest in a superannuation fund. It was developed to achieve an objective given to the Financial Services Working Group by the then Minister for Superannuation and Corporate Law, Nick Sherry.

ASIC have changed regulatory settings to give trustees of superannuation funds greater certainty when providing personal advice to their members about their existing interest in their current superannuation fund. We hope that providing greater certainty encourages trustees to provide more information, more general advice and more personal advice to their members. Most superannuation funds members presently receive no advice at all and we are trying to address this. We hope that members use this advice to make decisions about their superannuation that ultimately provides them with a greater retirement benefit than they would have if they received no advice.

Information, general advice, personal advice

Trish: ASIC has divided the information/advice that can be provided to fund members into three categories – factual information, general advice and personal advice. Can you please explain the difference between these three categories?

Louise Du Pre-Alba:

• Factual information is information that is objectively ascertainable whose truth or accuracy cannot be reasonably questioned. An example would be where the trustee’s representative talks about the investment earnings of the fund having been declared as being 5.5% for the past year.
• General advice can be a recommendation or a statement of opinion about the superannuation fund that does not take into account any of the member’s objectives, financial circumstances or needs. An example would be where the trustee’s representative talks about the investment performance of the fund being ‘good’ but does not reference this issue back to the member’s personal financial circumstances.
• Personal advice is a recommendation or statement of opinion about the member’s interest in the superannuation fund that takes into account one or more of the fund member’s objectives, financial circumstances or needs when providing the advice. An example would be where the trustee’s representative advises the fund member to direct their ongoing contributions to the fund to go to the ‘cash’ option in the fund, rather than the ‘balanced’ option, because the member is getting closer to retirement age and is more likely to draw down on some of that superannuation benefit for income.

Fuller descriptions of these general categories are in ASIC’s published material. Please see www.asic.gov.au

Understanding the difference between information and advice

Trish: How will a fund member know whether they are getting information or advice when they contact their super fund?

Louise Du Pre-Alba: Superannuation trustees who operate under the simple intra-fund advice model are legally required to disclose to their members, both before and when giving this advice, the limits or parameters of the advice they are giving – that it is only about the member’s interest in that particular fund and it is only about a particular specified subject such as the fund’s investment options or insurance, financial hardship, contributions etc. The Financial Services Guide requirements also remain in place in relation to simple intra-fund advice.

Where superannuation trustees are merely providing factual information, there are no such conditions: trustees are able and do provide factual information to their members right now.

Trish: What super funds are able to provide this advice?

Louise Du Pre-Alba: Superannuation funds (other than self-managed superannuation funds) are able to provide personal advice under this category of intra-fund advice where they hold an Australian Financial Services Licence and have an authorisation under that licence to provide personal advice about superannuation.

Trish: Does this cheap advice option mean there is no need for licensed financial advisers providing full financial plans?

Louise Du Pre-Alba: This advice option is just that – an additional option for members, particularly where they feel they do not need full holistic advice about all their personal financial circumstances.

This option should assist those members with smaller account balances who need simple advice about how to maximise their benefits and options within their existing superannuation fund. This advice option should help those members make decisions to increase their overall superannuation benefit in the long term. Such members may need a full financial plan later on when they have more money in super and their financial affairs are more complex.

Counting the cost of cheap financial advice

Trish: How much will this limited personal advice cost?

Louise Du Pre-Alba: The trustees decide how much intra-fund advice will cost. We expect that where trustees make a decision to provide this type of advice to their members, they will strive to make it cost effective to encourage their members to seek advice about their superannuation.

Trish: Will super funds be able to charge for simply providing factual information? For example, what is my account balance?

Louise Du Pre-Alba: All fund members should look at the current fees charged by their superannuation fund. There are no regulatory limits on how trustees charge members for their services, only that those fees and charges are disclosed. We do not expect that the provision of simple advice on superannuation would lead to trustees charging members for providing basic factual information about their fund, which they usually provide now.

Trish: I was surprised to read that when a super fund provides factual information, or personal or general advice, the super fund does not have to verbally disclose the cost of this advice. Such costs only have to be disclosed in writing. Can you please confirm that a person can ring a call centre, be charged a fee, and not find out about this fee until they a statement of advice in the mail a couple of days later.

Louise Du Pre-Alba: The intra-fund advice package applies to advice given to existing members of a particular superannuation fund. Funds giving intra-fund advice must comply with the usual Financial Services Guide requirements, which outlines the financial services that a trustee can provide and the costs of those services, and which includes any fee payable by the client for advice. Trustees are required to disclosure an increase in any of the fees that are charged to members as a result of the advice given. Members may also have received a Product Disclosure Statement about the fund and trustees are legally required to disclosure all fees and charges in this document.

Can consumers expect quality advice from super funds?

Trish: Super funds can provide advice about concessional (before-tax) contributions, even though such a strategy has tax implications. Why is ASIC allowing super funds to provide such advice, when super funds and most financial advisers are not registered tax agents, and generally should not be providing tax advice?

Louise Du Pre-Alba: ASIC’s intra-fund advice package relates only to section 945A of the Corporations Act. All other financial services requirements have been retained, and the operation of all other potentially applicable laws are unaffected. Any possible requirements in relation to Tax Agents that may arise in relation to intra-fund advice is one part of the background to the provision of the advice, as is the case for any other advice or AFS licensee.

Trish: I understand that a super fund can advise a fund member to change investment options. How will a fund member know that this advice is suitable for his needs, in particular, his individual risk profile?

Louise Du Pre-Alba: Trustees operating under the intra-fund advice rules would give personal advice, and in this type of advice the trustee will have taken into account one or more of the member’s objectives, financial circumstances or needs. Trustees are still required to make enquiries of the personal financial circumstances of the member that are relevant to the scope of the advice they have undertaken to give, and this is also part of the trustee’s general fiduciary obligations to members. Identifying the member’s individual risk profile would be a relevant enquiry to make given that the scope of the advice given relates to changing investment options within the superannuation fund. They still have to have disclose the reasoning that led to the advice they give, under the Statement of Advice requirements.

Trish: Super funds can provide advice about what types of insurance cover to choose, and the level of insurance cover necessary for a fund member. Surely, this could only be done face-to-face because so many variables need to be taken into account when working out insurance cover? Can you take me through how a super fund will provide advice on insurance?

Louise Du Pre-Alba: Trustees operating under the intra-fund advice rules are required to make enquiries of the personal financial circumstances of the member that are relevant to the scope of the advice they are giving due to the Statement of Advice requirement. There is no requirement that this needs to be face-to-face in order to talk about insurance – this can be done by phone. The Corporations Act is neutral about technology. This means that you can give factual information and advice over the phone, by email, on the internet, face-to-face or in any combination of these or other ways.

Trish: Who is going to be giving this advice? Is it someone who works in a call centre, or a fully qualified financial adviser? If it is a call centre individual with minimal training, why should fund members bother?

Louise Du Pre-Alba: Trustees’ representatives who give personal advice are required to be RG 146 compliant like any other financial adviser who is an authorised representative of the holder of an Australian Financial Services Licensee. If someone providing this advice gives such advice from a call centre, that does not change the regulatory settings about the quality of that advice or the type of training that they have had.

Super funds must manage conflicts of interest when providing advice

Trish: A super fund providing advice about its own products, such as investment options and insurance, is clearly not independent. Isn’t this approach part of the problem with the financial advice area – conflicts of interest? For example, the general message coming from the large funds is that fund members should keep their money in the balanced investment option. So, if a fund member asks whether they should move super savings into another investment option, say, cash or a similarly conservative option, will the fund’s advice be: “don’t do it”, or to “change investment options”? In short, is the general message that most large super funds provide to members about remaining in the balanced investment option mean that fund members seeking personal advice will not receive appropriate advice?

Louise Du Pre-Alba: Trustees of superannuation funds are required to manage conflicts of interest in their dealings. The regulatory settings around conflicts of interest have not changed with the introduction of intra-fund advice, and continue to apply to intra-fund advice given to existing fund members.

Dealing with wrong or inappropriate advice

Trish: What happens if the advice provided is wrong or the fund member is not happy with the advice? Where can the fund member go to in order to complain about the quality of advice?

Louise Du Pre-Alba: Trustees are already required to deal with members complaints in the first instance, and then if members are unsatisfied with how their complaint is dealt with, they can make a complaint about the trustee’s decision to the Superannuation Complaints Tribunal.

Trish: What happens if the question that the fund member asks does not fall within the special rules applicable to this cheap advice option? Is the super fund required to refer them to a financial adviser, or do they just end the phone call or meeting. For example, questions such as: “should I switch super funds?”, or “how money is enough for my retirement?”?

Louise Du Pre-Alba: Trustees cannot provide that type of advice under the intra-fund advice settings. They should indicate to the member that they cannot provide switching or retirement advice under the intra-fund advice settings if asked about these topics. It is then up to the trustee if they decide to provide holistic financial advice as a separate matter (if the representative is authorised to do so) or refer the member to a financial adviser. There is no mandatory advice referral system under the intra-fund advice changes.

Trish: There is the old saying: “A little knowledge is dangerous”. On the surface, there seems to be a risk that a fund member seeking information/advice on a topic she doesn’t know much about, is going to be advised by individuals who equally know little about the topic. Can you comment on this view?

Louise Du Pre-Alba: The intra-product advice changes have been brought about because there is an unmet need for simple advice about a member’s existing interest in their superannuation fund. It does not follow that those who give this type of advice know little about the topic. Trustee representatives operating under the intra-fund advice settings are required to meet the same minimum training and educational requirements as financial advisers providing holistic financial advice about superannuation.

Super funds now offering free and cheap financial advice

Trish: When can super funds starting giving this advice?

Louise Du Pre-Alba: Once they have an AFSL with a personal advice authorisation and appropriately qualified representatives.

Trish: Thank you Louise. I would like to revisit this issue in six months’ time to see how the advice rules are playing out for fund members. Are you interested in chatting with SuperGuide early next year?

Louise Du Pre-Alba: You’re welcome. We’re always happy to talk further.