Thanks to FoFA, working in tandem with MySuper legislation, specialist superannuation advisory businesses aren’t making enough money to survive.
It’s been an issue that the Corporate Super Specialist Alliance (CSSA), whose members provide financial advisory services to thousands of corporate superannuation funds, have been fighting for months – and now the big wigs have joined the party.
The Commonwealth Bank of Australia, AMP
and Minter Ellison all made submissions to the senate inquiry into FoFA urging the government to fix the remuneration issues for such specialists.
The three also outlined alternative solutions that could potentially be implemented.
President of the CSSA, Douglas Latto, has told Wealth Professional
on multiple occasions about the struggles corporate super specialists are facing.
This is because before legislation changes, they 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 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.”
He is hugely supportive of the solution recently suggested by the CBA and AMP that would see employers being labelled wholesale clients rather than retail clients, hence removing the perceived conflict as the advice would not be considered personal.
Law firm Minster Ellison also put its two cents in, and suggested making intra-fund advice exempt from conflicted remuneration.
“It is not exempt at the moment, but making it exempt would also solve the problem,” said Latto, adding that the preferred option would be that of the CBA and AMP due to some technical concerns with the best interest duty.
He said a timely solution is vital because with the modern award reviews occurring on default superannuation, there are potentially thousands of employers wanting and needing help selecting a new fund.
He highlighted a report from a Parliamentary Joint Committee hearing in February 2012 that outlined the valuable role that corporate super specialists play.
“Corporate super specialists promote choices in the market and these valuable services should continue to be provided,” it said. “The Committee believes that corporate super specialists should continue to receive benefits where they receive fee for service or a value of scale efficiencies.”
But if the problem can’t be solved, corporate super advisers will be forced to diminish their services or simply walk away, Latto said.