Niche superannuation advisory market being killed

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Specialist superannuation advisory businesses aren’t making enough money to survive thanks to payment structures stipulated under the FoFA legislation.

The Corporate Superannuation Specialist Alliance (CSSA), an association that represents corporate superannuation specialist advisory businesses, has made a submission to Treasury imploring for a change to payment structures in the legislation in order to fix the current “unworkable” situation.

Members of the CSSA provide financial advisory services to thousands of corporate superannuation funds across four levels: the employer level, the policy committee, the individual super fund level, and collective superfund members.

But in an interview with Wealth Professional, President Douglas Latto said FoFA, working in tandem with MySuper legislation, dramatically reduced superannuation fund member access to the association’s services.

Before legislation changes, corporate super advisers operated by charging a pre-arranged plan service fee that covered the amount of service and general advice provided. Under FoFA, this is conflicted remuneration, and not allowed.

In an effort to fix the problem, the CSSA consulted with Treasury in hopes of finding a viable remuneration model aligned with the FoFA reforms. The association was advised that the intra-fund fee would be the vehicle by which corporate super advisers could be remunerated moving forward under MySuper.

But Latto said unfortunately this is not the case, because the intra-fund is a set fee for all members that’s irrespective of the amount of distance travelled, time spent, or work provided; which includes educational seminars, work place meetings, and events.

In reality these types of services were not envisaged as being part of the intra-fund service, he said.

“The amount they’re giving us is nowhere near the amount needed to provide the services. We’re finding we might get 60% of what we got before and we can’t deliver it in a profitable manner because there’s no [payment] differential in the type of work required. We can’t get paid for what we do anymore – it’s a major problem.”

As well as badly impacting on advisers, the current structure also results in worse consumer outcomes because employers can’t get the service they value, said Latto, citing corporate super research commissioned by the Association of Financial Advisers in 2011.

In the research, almost all employer respondents (96.8%) said their fund utilises the services of a financial adviser to provide services to their corporate super fund. Of those who used them, 89.2% said the services were valuable to an extent, and over a third (35.4%) perceived them as ‘very valuable’.

To fix the ‘unworkable’ problem, the CSSA are suggesting that the intra-fund fee become transparent and separate from the administration fee, and that it is made negotiable at a workplace level, much in the same way that administration fees are.

If there was also a further extension to the client pays exemption that covered fees agreed with the employer on behalf of the members, payment would not be considered conflicted, said Latto.

“The government agrees [our service] is valuable, but we can’t deliver it. We need to find a way to do that.”

If the problem can’t be solved, corporate super advisers will be forced to diminish their services or simply walk away, he said.

“If we’re not there to do what we’re doing, the advice will fall back into the reactive level where people just call a call centre. We’re bringing the service to them.”

SEE MORE:

MySuper red tape claim rejected by CSSA

Overhaul needed for intra-fund advice

Employers need advice more than ever




 

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