The next few weeks are very important for the advice profession as the Royal Commission moves away from the private sector and into the superannuation arena via a review of industry funds and their advice arms.
We are finally heading toward a reality check around the true pricing and conflicts of advice – and the RC review will no doubt add fuel to this fire as the funds’ advice arms grapple with their own demons around conflicts, member best interest vs client best interest and of course subsidised pricing. All of this exists and it’s not perfect.
Member fund advice isn’t really personal advice. It’s single product advice and that’s where part of the challenge lies in getting some common sense. We all know it’s logical to make super fund guidance just general advice but, when you throw stones in glass houses which is what the industry fund movement through IFS has been doing at the bank channels, it doesn’t help.
Now it’s their time to be assessed against the Corps Act requirements with the word “advice”, and regrettably neither the dictionary nor the Corps Act provide sufficient scope for the difference between personal and intra-fund advice.
One major challenge is half the time the Corps Act can’t even be met in business… so maybe this should be addressed. In other words, it’s time to modernise the act to reflect reality.
Evidence of this need is obvious. For example, any self-employed adviser running their own business and claiming to be independently owned can breach the act for telling the truth – it’s an understandable effort to stop misleading statements but how did policy wording ever get that bad?
Government critics feel we are now heading toward a reality check with the pricing of advice in a non-conflicted world and the next few weeks will no doubt uncover some unpleasant truths on this. Ironically, the review comes the very week after the CPA announced that it is closing down its own advice arm because it costs too much to run an AFSL while meeting the standards called for by the very same profession.
There was lots of fancy wording in the public release, but the conclusion is licensing is just getting too hard, out of control and that it’s disappointing the profession of accounting can’t even afford to licence itself. A moment of reality for all in government to consider.
The reason it costs too much is because of the regulatory impost, the drafting of the Corps Act and the political punching bagging of the wealth sector. Finally, when you link advice and super together and review it – as is about to happen – it’s obviously a pretty volatile cocktail.
So, what’s really likely to happen with super advice? Sadly, if its treated as a punching bag we lose an opportunity to provide scaled advice. If it is treated as personal advice it will likely fail the basic tests imposed by the Corps Act around reasonable alternatives and client best interest.
If it’s deemed personal advice, a member simply looking for help on their choice of say a balance or growth portfolio would get caught in the Corps Act wind tunnel because the employed adviser would need to seek information about their personal circumstances – and frankly, how could one not for any form of advice?
If the test applied to the private sector is used, some evidence of alternative super fund should be considered and bingo – we have a problem. The member wasn’t looking for that, arguably there could be better funds available and now the adviser is headlong into personal advice without any background information on external assets.
The problem is, if advice is indeed unbiased, is in the client’s best interest and not deemed to be intra, then it will cost more (ask the CPAs) and the mass produced SoAs run out by the Industry Funds will have to change – thereby losing scale and increasing costs. Welcome to advice in Australia circa 2018.
Many executives and advice practitioners in the private sector will feel vindicated if there’s a balanced bloodletting with all of this, but as ‘On the Money’ has highlighted before, there are no winners when customers are scared off from seeking guidance. And worse still, if trust in advice falters many Australians will be in a worse position not better.
Maybe this is a time to come together as a collective voice and for all players to seek simplification and common sense – that’s truly in a clients and members best interest.
Ian Knox is the chairman of Paragem Pty Ltd. The views expressed are his own.