More advisers out of pocket

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More advisers are finding problems with legislation that make it hard to provide adequate advice while still getting paid for it.

With the implementation of FoFA, coupled with Stronger Super reforms, corporate super advisers helping employers to select a default fund will not be able to receive fees for service from the administrator of the fund, for advice services to fund members.

The concern is that any on-going fee revenue is potentially conflicted remuneration if a recommendation is also made on default fund selection.

In a letter to former Financial Services Minister Bill Shorten, the Corporate Super Specialist Alliance (CSSA) said that this was an “unfortunate and unexpected development”.

 “Corporate advisers are severely inhibited in providing choice of default superannuation fund advice to employers if they intend to have an on-going relationship with the fund and its members.”

The advisers are potentially prevented from acting in the best interests of employees/prospective fund members when giving choice of default superannuation fund advice, according to the CSSA’s letter to Shorten. Rather, corporate advisers will be required to consider the best interests of employers – which may be different.

CSSA Treasurer Gareth Hall says that corporate super advisers play a vital role in educating members through seminars and workshops, but these reforms are preventing this from happening.

“If they don’t get proactive education, then they don’t know what they’re missing out on,” he says about members.

The changes in this sector will make it hard for some corporate advisers to survive, says Hall. As members are moved to funds under modern awards, some advisers could be losing up to 40-50% of their revenue, but this won’t be until 2017 thanks to grandfathering arrangements.

Hall says the CSSA has written to ASIC, Treasury and the Minister, but everything is likely to come to a standstill until after the election.

With feedback from Treasury, the CSSA has made suggestions that the SOA preparation process ensure advisers are not conflicted, including a signed employer declaration agreeing which funds should be included in the SoA. If the successful fund is requested to pay on-going remuneration to a CSS, the Trustee would not do so unless the SOA is reviewed by an independent specialist body.

  • Peter Vickers on 7/08/2013 10:29:11 AM

    This is what conflict of interest is all about.

    There thus could be two separate advisors.

    One for the employer and one for the empoyees/members.

  • Andrew Dudman on 7/08/2013 12:46:42 PM

    This is what happens when a government MPs live and die at the behest of union officials who also sit on trustee boards of industry funds - a the system designed to only allow only one side to play.

    After 20 years as a corporate fund adviser I saw the writing on the wall as employer clients gave up on their own funds because government had made it too hard.

    In most cases I have seen a shift to lowest common denominator industry funds where few people can claim to be better off.

    The sad reality is management, who were highly engaged in their company's sponsored fund, have now been permitted to abrogate any sense of corporate responsibility for their employees' long term security.

    The current interpretations of what constitutes a conflicts of interest are a nonsense. Under funds I once advised there was an alignment of interest between employer, employee and adviser as we all had a vested interest in a well designed and serviced quality fund and associated benefits programs.

    Times change and I am now providing private client advice, often to clients who have the means to exit the industry funds. This leaves those at the bottom to deal with the increasingly narrow industry fund base offering their vertically integrated service and product solution - now that's a real conflict of interest!

  • Andrew on 7/08/2013 1:32:17 PM

    I am not involved in employer super funds in any way however Peter I dont think the industry funds are going to have or allow two advisers one for the employer and one for the employee so who would they be serving as a priority ? Does conflict of interest exist here ? and if not why not ?

  • Peter Vickers on 7/08/2013 3:24:25 PM

    Advisors are not supposed to have conflicted remuneration structures.
    Thus the employer pays for the advice to the employer and the members pay for advice to them. (The employer could pay for this also but this would be a fringe benefit)

    The fund really has nothing to do with advice specially as if it does not pay commissions

  • Innocent Observer on 7/08/2013 6:50:19 PM

    This is dumb policy in its purest form.

    The fund's "default" fund should represent the most appropriate option for the majority of members. However if an adviser chooses the said default fund he/she is at risk of having their fees cancelled.

    I personally don't deal with corporate super stuff, but I trust that most who do try their best to do the right thing. Cutting them off at the knees like this serves no benefit to the client.

  • Brent Hopping on 8/08/2013 7:56:31 AM

    What is also an unintended consequence and another contradiction is the negative impact on ASICs National Financial Literacy Strategy. While ASIC sees the education of Australians around financial literacy as a priority, the unintended consequences of the reforms means the time when eduation will arguably have it's greatest postive impact i.e. when people are managing their finances, is lost due to the reduction in services provided by qualified and experienced wealth professionals conducting valuable & ongoing education in the workplace.

  • Jon Dixon on 17/12/2013 11:44:34 AM

    There are so many 'conflicts of interest' in this world but it only seems fianacial advisers are being targeted causing increased costs, decreased revenue and much confusion for both advisers and clients. The Govt needs to step in quick and remove many pieces of crap Labor Govt legislation created by egotiscal ministers to get back to basics...looking after the individual client.

  • Alistair on 17/12/2013 2:12:21 PM

    Thanks to the previous pack of nitwits in office, Labor, we as an industry along with many industries from manufacturing, IT, Retail, construction, mining, financial services etc are drowning under the weight of over regulation, high taxes and high costs of doing business. Our clients retirement outcomes compromised, the hangover of the former Labor government will be with us for a while as the current lot deals with the nonsense created by a pack of incompetent economic terrorists.
    As for our FP industry, the fight to more common sense is on.
    We all need to unite with a common message and tell the client the consequence of an under funded retirement, cost of living increases, outliving their investments, changes in the Aged care sector and the changes in law now perhaps required for both Centrelink and Tax in order to reign in the mess of the previous pack of morons called the Labor Party.
    I agree with all that have commented but the message needs to be communicated to the current lot and our clients with far more vigor. Thankfully, I hope this lot in office will listen to our problems.....after all there's lots of them and right now we could do with the relief.....

  • Keith L. on 18/12/2013 3:56:02 PM

    For those who think Craig Thompson’s use of union funds deplorable, I believe he is a mere tadpole compared to the way Bill Shorten has used industry funds to pay his campaign expenses and repaid the debt with biased legislation and regulation. All legitimate, of course!
    Conflicts of interest certainly occur in the advice area of our industry, some are real, some are only conflicted because we care to believe they are. Compared to the legislated and regulated conflicts built into the system, the ones we address in these columns are insignificant. Having said that, the impact on individuals, including members deprived of advice because of what can only be described as childlike and ineptly constructed legislation can be, and in some cases is, quite devastating.
    The inbuilt bias towards union funds will inevitably result in the uneven accumulation of superannuation wealth under the control of boards consisting of an over-representation of union influenced members. This in turn will lead to investment decisions biased towards union movement objectives. While this may well align to the interests of investors as defined by the sole purpose philosophy, that will not always be true. The larger that particular slice of the cake becomes, the harder it will be to correct the situation in the future.
    As instanced by publicity campaigns attempting to capture public membership, not all union superannuation fund members will be union members which means biased investment decisions may conflict with many members’ interests.
    Surely Joe Hockey and others can see the potential future danger of this growing financial muscle and correct the imbalance created by Bill Shorten’s bill paying service!

  • Jon Dixon on 27/12/2013 5:58:34 PM

    As long as the consumer is 100% aware of a conflict of interest that is the most important aspect....some times the conflict is beneficial !!!

    What annoys me is the hidden conflicts and the unlevel playing field and the very poor advice industry funds provide.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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