Intra-fund advice costs less than $3, but who uses it?

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The median yearly fee per member for intra-fund is less than $3, reveals a recent survey, but is the advice provided worthwhile?

Pauline Vamos, CEO of the Association of Superannuation Funds of Australia (ASFA) says yes – as long as it remains limited, and a sort of ‘general advice plus’.

Her comments to Wealth Professional come after a just-released ASFA report, which uses research conducted by ASIC and Rice Warner, to demonstrate the seemingly very low cost of intra-fund advice.

The report found the median cost for the advice equated to $2.81 per member per year, with an average per member per year cost of $9.65.

The bulk of this cost of scaled advice (87%) is covered by general administration fees charged automatically to members by funds, or a combination of general administration fees and a specific fee for the service provided.

A major criticism of this scaled advice has been the lack of transparency in that the fees are often hidden within administration costs. Many have called for greater disclosure or an opt-out option.

One fund interviewed in the report said only five per cent of the members who call the general helpline were referred to the financial advice helpline for intra-fund advice.

However this fund also asserted that the shared cost of scaled advice among the members meant the advice became accessible, affordable, and efficient to deliver.

“Previous experience indicates that if we try to charge for these services, there are extremely low take up rates. Also, the cost of administering payment outweighs any benefit,” it reported. “Members generally call us for help, not advice. They may land up getting advice because of regulation, not because they asked for it, prefer it, and are prepared to pay for it. In fact, when relating to their super fund, they expect the cost of super should cover the provision of “help” and are horrified if we try to charge for it.”
 
But Vamos said the low take up rate is because intra-fund advice is still a relatively new concept, which will become more popular as people grow older and more engaged.

The relatively small number of members who use the advice in comparison with the number who help pay for it is not abnormal, she said, comparing it to purchasing an insurance policy which may never be used.

“Advice is only one part of the overall service. For example, you may never use a call centre in your life, but you expect it be there. Intra-funds are the same. It’s the cost of business – it swings in roundabouts.”

Intra-fund advice should remain a compulsory cost in any superannuation fund, as long as the definition remains the same, Vamos said.

It was intended to be a sort of add-on to general advice, which has a very low scope, she said.

“Provided it’s not abused, [intra-fund advice] should be a part of the normal service of any superannuation provider. But we mustn’t have scope-creep… It should be a general advice plus, not a personal advice minus.”

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