fund advice - Industry Super Australia

Transcription

ISN BRIEFING
NOTE
INDUSTRY
SUPER FUNDS
LEAD ON INTRA
FUND ADVICE
INTRA FUND
ADVICE
Provision of Intra Fund
Advice Services by Not
for Profit Super Funds
By Robbie Campo
August 2010
Provision of Intra Fund Advice Services
by Not for Profit Super Funds
Contents
About Industry Super Network
3
Summary 4
1. Background
4
2.What is ‘Intra Fund Advice’?
5
3. Members’ Advice Needs
6
4. Impact of RG200 and issuing of Class Order Relief
7
5. Provision of Intra Fund Advice Services by Funds
7
- 5.1 Significant growth in intra fund advice expected over next 5 years
8
- 5.2 Intra fund advice offered within full spectrum of financial planning services
8
- 5.3 Who do funds use to deliver intra fund advice?
8
- 5.4 Cost/Charging
9
- 5.5 Topics of Intra Fund Advice
9
- 5.6 Channels of Advice Delivery
9
6. Future Trends in Intra Fund Advice
10
7.Conclusion
12
PROVISION OF INTRA FUND ADVICE SERVICES BY NOT FOR PROFIT SUPER FUNDS
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August 2010
www.industrysupernetwork.com
2
About Industry Super Network
Industry Super Network (ISN) is an umbrella organisation for the industry super movement. ISN manages
collective policies on behalf of a number of industry super funds with the objective of maximising the
retirement savings of five million industry super fund members.
This paper was written by Robbie Campo, ISN Manager - Strategy with the assistance of Dr Matthew Steen,
ISN Economist, who provided some research assistance in writing this Briefing Note.
Inquiries: [email protected]
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August 2010
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EXECUTIVE
SUMMARY
This Briefing Note provides an update on superannuation related financial advice services by industry
superannuation funds to their members.
This Briefing Note will document observable trends in the adoption of intra fund advice including results of
a survey of 9 large industry super funds and will identify future likely developments in the area of simple
financial advice. In summary:
• T
he publication of RG200 and issuing of class order relief by ASIC has resulted in a considerable strategic
shift in super funds’ approaches to delivery of financial advice services to their members. Nearly all super
funds are building or expanding their financial advice services, with bulk of services focusing on providing
simple single issue advice to accumulation members via efficient channels such as phone based advice.
• H
owever, simple or intra fund advice services are still in their infancy and growth in delivery and take-up
will be exponential in the next decade.
• T
he models used by super funds to deliver single issue are divergent and tend to reflect the demographic
and needs of the funds’ memberships.
• F
urther likely reforms, including those announced in the Future of Financial Advice (FOFA) reform
package and in the Final Report of the Cooper Review will increase the role of simple advice services
further.
• W
hile industry super funds have been the first to embrace and implement intra fund advice services,
over time all super funds including commercially operated funds, will offer these services to members.
• T
he emergence of intra fund advice services will contribute, along with the FOFA reforms, to increasing
stratification of the financial advice industry.
1. Background
In July 2009, ASIC released guidance (RG200 – Advice to Super Fund Members) and Class Order Relief
(CO 09/210) the purpose of which was to facilitate the provision of simple single issue financial advice
services to the existing members of superannuation funds.
RG200 offered superannuation funds guidance on providing factual information, general advice and
personal financial advice to their existing members on the topics of making additional superannuation
contributions, additional insurance offered within the superannuation product and member investment
choice within the trustee directed investment options. RG200 offered funds a couple of avenues for
providing this advice:
• C
lass Order Relief from having to comply with s945A of the Corporations Act (‘the reasonable basis test’)
was offered to super funds who held their own AFSL authorising provision of personal advice.
However, use of this Relief was reasonably conditional as funds were precluded from outsourcing the
provision of this advice and had to provide members with a mandatory warning.
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• A
lternatively, RG200 provided detailed demonstrations for funds in providing single issue personal advice
on contributions, investment choice and contributions to existing members in a scalable manner within
the existing framework of the Corporations Act.
RG200 has resulted in the significant expansion and development of advice services, however, it should be noted
that there were a number of funds which had already developed large scale advice services prior to July 2009.
2. What is ‘Intra Fund Advice’?
There is often confusion associated with the use of the term ‘intra fund advice’ as it can be used to describe
different types of advice, including:
• A
dvice delivered pursuant to the class order relief associated with RG200 – that is, advice delivered on
insurance, member investment choice and contributions by a super trustee relying on the relief (which
requires a fund trustee to deliver the personal advice under its own AFSL).
• A
dvice delivered on insurance, contributions and member investment choice in a manner consistent with
the approach demonstrated in RG200, provided either by the super trustee directly or by outsourced
AFSL/planners (but working within the existing requirements of s945A of the Corporations Act).
• A
ny personal advice delivered by a super fund relating to the member’s account in the fund, either using
its own AFSL or through outsourced providers, which utilises a scalable and/or single issue approach to
providing the advice.
For the purposes of clarity in this Briefing Note, references to ‘intra fund advice’ will relate only to the first
two definitions. The third broader definition will be referred to as ‘simple superannuation advice’.
A key conceptual precondition to the regulatory relief and interpretations of ‘intra fund’ advice is the fact
that the advice is provided to a member about their existing interest in the superannuation fund. Central
to the public policy goals of ASIC’s relief and guidance is recognition that superannuation is a compulsory
investment and a desire to improve the access of working Australians to advice about their super fund.
It should also be noted that the limitations around ‘intra fund advice’ means that the reforms could be
undertaken without reducing important consumer protections in the FSR provisions of the Corporations
Act, because the advice is limited to a member considering the options available within their existing fund.
Intra fund advice therefore precludes any sales or switching advice. ASIC noted through the reform process
that super funds already had a ‘special relationship’ with their members, in particular the fact that super
funds were already subject to a fiduciary duty to their members pursuant to s52(2) of the SIS Act.
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3. Members’ Advice Needs
ISN has long advocated the development of single issue financial advice services based on a strong belief
that the existing commercial model for delivering financial advice was too expensive and unnecessarily
sophisticated and tailored having regard to the financial position and advice needs of much of the
population.
ABS statistics reveal that outside property and super, the investable assets of most Australian households
are negligible1. The average balance of a superannuation account in industry super funds is $16,6002.
While industry super funds are very cognisant of the positive role which financial advice can play in
bettering the financial outcomes for their members, the needs of most members especially in the earlier
stages of accumulation are reasonably straightforward and generic in nature.
To test our understanding of the level of demand for financial advice, Industry Super Network
commissioned Forethought Research to undertake an important study into the attitudes of Australians
with respect to financial advice in late 2009.
Forethought Research surveyed 804 adult Australians with superannuation about their demand for
financial advice in the two years to November 2009, and the results were as follows:
• T
wo-thirds of all respondents sought no advice at all in the two years between November 2007 and
November 2009.
• L ess than 20 per cent of workers earning under $100,000 sought ongoing complex financial advice in
the two years to November 2009.
• L ess than half of those seeking financial advice (13.8 per cent of all respondents) obtained ongoing
complex advice from a financial planner.
• T
he two most popular matters of advice – tax/entitlements from government and mortgages/loans
– are not regulated matters and were overwhelmingly delivered by tax agents and mortgage brokers.
• T
he next most popular matter of advice was investment choices within superannuation, with
superannuation funds being the preferred provider.
• F
orethought’s survey also confirmed that the major consumers of full financial advice are high
wealth individuals and those close to retirement. In the two years to November 2009, 82 per cent of
respondents with an annual gross personal income less than $100,000 did not seek ongoing complex
financial advice.
• M
oreover, over half of all respondents (of any income) who sought ongoing complex financial advice were
aged 55 and over.
The Forethought Research confirmed the view long advocated by ISN, that only a small proportion of
Australians seek financial advice and they tend to be higher net worth and close to or already in retirement,
and that the vast majority of the population’s financial advice needs are currently not being met by the
mainstream financial planning industry.
Australian Bureau of Statistics, Household Wealth & Wealth Distribution 2005-6, issued 9 November 2007
1
APRAAnnual Superannuation Bulletin, June 2009, see http://www.apra.gov.au/Statistics/upload/June-2009-Annual-Superannuation-Bulletin-PDF.pdf
2
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4. Impact of RG200 and Issuing of Class Order Relief
While there were several large funds which were early movers in the provision of intra fund advice, prior to
the publication of RG200 by ASIC, most super funds provided their members with only factual information,
general advice and full financial planning services. Full financial planning services were generally taken up
by members (pre or post retirement) with higher balances, and was provided typically on a one-off fee for
service, user pays basis.
There existed a significant ‘advice gap’, in that while it was recognised that the bulk of members would
benefit from some limited personal advice on the key aspects of their membership of the fund, it was not
cost effective for the member or the fund to provide full financial planning services to meet their advice
needs. Funds were very conservative about creating limited or single issue financial advice services due to
the prevailing interpretations of legal and professional obligations when providing financial advice. To use
an analogy, there was a gap in the provision of ‘public transport’ advice as the only services available were
‘limousine’ advice services.
The publication of RG 200 was very significant in signalling to the market that ASIC would adopt a
facilitative approach to ‘intra fund advice’ to achieve the public policy goals of increasing access to financial
advice services, particularly around superannuation. Remaining conservatism within super funds around
the legitimacy of creating modularised units of financial advice to meet members’ advice needs have largely
evaporated. All large industry super funds are building or expanding on key offerings within superannuation
products.
5. Provision of Intra Fund Advice Services by Funds
For the purposes of documenting the take up of intra fund advice in this Briefing Note, ISN interviewed
9 large industry superannuation funds regarding their financial advice services3. These funds represent a
significant portion of the industry superannuation sector, having a total membership of around 7.13 million
members and total funds under management of $118B. The average balance of these funds is just under
$25,000.
ISN undertook a brief survey of these funds to investigate the take up of intra fund advice, and the
following paragraphs provide a summary of the outcomes of that survey.
ISN would like to thank the following funds for agreeing to participate in this survey: AustralianSuper, CBus, HESTA Super Fund, HOSTPlus, LUCRF, MTAA Super Fund, REST,
3
Sunsuper, Telstra Super Financial Planning
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5.1 Significant growth in intra fund advice expected over next 5 years
All funds involved in the ISN study provided the full spectrum of advice services to their members, with
limited advice services intended to plug the gap between factual information and general advice on the one
hand and full financial services on the other. Funds interviewed were at different stages in the development
of ‘intra fund’ and ‘limited advice’ services, however most reported that they would expect very significant
growth in their demand and supply of these services over the next 5 – 10 years. Funds have invested
significant amounts of money into projects to research, plan, build and deliver these services to their
members.
5.2 Intra Fund Advice offered within full spectrum of financial planning services
All funds also saw limited financial advice services as fitting within a spectrum of member engagement and
financial advice. In order to ensure that members’ advice needs are being properly addressed and that they
have fulfilled their fiduciary obligations to members, funds have designed their advice models incorporate
effective ‘triage’ processes so that members with more complex circumstances or needs are referred to a
planner for more traditional holistic financial advice.
5.3 Who do funds use to deliver Intra Fund Advice?
In relation to use of in-house or outsourced providers, there are a variety of models in use by funds.
Some fully outsource all their financial advice services including their intra fund advice services.
Others outsource full financial planning services but provide the more limited or intra fund services
in-house. Other funds outsource financial advice to a wholly owned subsidiary. Only one fund interviewed
had made use of the class order relief. However, a number of the funds interviewed were clearly of the
view that there was no distinction between the process of providing advice in a scalable manner under the
existing s945A requirements and advice provided pursuant to the relief.
All funds interviewed reported that their limited or intra fund advice services were provided by staff who
were fully qualified planners (DFP or CFP), with a combination of qualifications and experience as would
be found in a traditional planning practice.
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5.4 Cost/Charging
Funds approach the charging of advice services in a variety of ways. Most funds provide intra fund advice to
members on the main topics of contributions, member investment choice and insurance within the fund at
no direct charge to the member. These services are funded from the fund’s administration charge (although
some funds have an annual cap on members’ access to free advice). However, there are some funds which
charge a one off fee (between $200-$500) for simple advice on other super related topics such as transition
to retirement. It is fair to conclude that most funds are still in the process of developing or piloting their
intra fund advice services and are not yet in a position to make a final decision on charging and funding of
their services.
Nearly all funds charge members on a fee for service basis for full financial planning services, ranging from
$1,200 to $3,000 depending on the complexity of the advice. Most funds facilitate the deduction of advice
costs from the member’s super account, where the advice is super related and falls within the sole purpose
test.
None of the funds pay or receive any commissions or volume based payments in relation to the advice
services provided.
5.5 Topics of Intra Fund Advice
The focus of intra fund advice services are focused primarily on the three topics demonstrated in RG200
– making additional contributions to the fund, advice on insurance options which are available through the
fund and member investment choice. Funds are increasingly also providing simple superannuation advice
to members with straightforward circumstances on transition to retirement and retirement planning issues.
5.6 Channels of Advice Delivery
Most intra fund advice is delivered over the phone, with members sent a SoA following the phone based
interview. The advice is generally modularised, although some members will elect to receive advice on
more than one topic. One fund surveyed had a primarily workplace based model for delivering intra fund
advice, where advisers attend workplaces to hold scheduled appointments with members. Some funds also
offered members the opportunity to meet a planner in a more traditional face to face interview but this
would certainly not be typical for intra fund advice delivery.
Currently most intra fund advice is initiated by the member, who typically calls the fund’s call centre and is
identified as having needs which cannot be satisfied by the type of information and general advice provided
by the call centre staff. Transfers to the advice teams are a seamless process for members.
While there are no funds currently delivering advice through web based tools accessed directly by the
member, one fund interviewed for this survey was in the process of developing such a tool. Several other
funds are considering the use of such tools within their suite of advice services.
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6. Future Trends in Intra Fund Advice
While there was considerable resistance to the publication of RG200 by financial planners and super retail
funds, it seems that retail super funds are beginning to recognise that the delivery of intra fund advice
services has the capacity to offer considerable efficiencies in addressing simple member advice needs
within their commercial model. A number of large retail super funds are reported to be exploring or building
intra fund advice services for existing members. Intra fund advice will ultimately be used across the entire
superannuation sector.
Increasing acceptance of the validity of intra fund advice to efficiently and sustainably deliver advice
services to members will be enhanced if further regulatory changes are made to specifically facilitate the
provision of intra fund advice on retirement planning issues as announced in the Future of Financial Advice
Reforms on 26 April 2010. It is also likely that if the ‘My Super’ reforms recommended in the Final Report
of the Cooper Review are implemented the provision of effective intra fund advice services will be a key
differentiating factor for funds. However, both these reform measures are dependent on the re-election
of a Labor Government.
Many funds surveyed for this Paper have the ambition to use intra fund advice to attempt to engage,
educate and advise all members at various points throughout their accumulation. In order to sustainably
deliver intra fund advice on this ambitious scale, ISN believes that all funds will ultimately move to delivery
of self help advice tools as a key channel of delivery of simple personal advice. As mentioned earlier, some
funds are already actively exploring the development of such tools, which use guided logic to lead members
to a recommended course of action with an automatically generated SoA. Intra fund advice services will
also increasingly dovetail with the provision of member forecasting tools and personalised calculators,
and will become the logical first destination for a member becoming engaged with their fund and their
superannuation.
Intra fund advice services will be a critical component of member engagement and will assist funds in
progressing members, over their membership and lifetime, along the engagement/advice continuum
(see diagram A).
The financial planning industry is already changing very rapidly in the face of the FOFA reforms. If a Labor
government is re-elected and implements in full the announced package of FOFA reforms, the minimum
professional obligations of financial planners will be increased and most forms of conflicted remuneration
will be banned. Financial advice will be disaggregated from the selling/distribution channel of product
manufacturers. The predominance of advice paid for by commission and ongoing advice fees currently
means that there is no pressure on the industry to find efficiencies in their practices. The introduction of
more transparent fee for service financial advice will hasten the stratification of the industry, as has been
seen in the legal and accounting professions, where for instance consumers with more straightforward
needs can consult a conveyancing business rather than a solicitor, or get their tax done by a ‘HR Block’ type
provider rather than see an accountant. While these services may not suit consumers with more complex
circumstances, they provide a cost effective alternative utilised by many consumers.
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Diagram A
The Advice Continuum
General Advice and Factual Information
Member Statements
Annual Report
Fund Website
Call Centre
Member is more likely
to move along the
continuum as they age
and accumulate more
in their super
Free
“Personalised General Advice”
Personalised forecasts and
Pre-populated calculator tools
Other web-based engagement tools
Free
Intrafund Advice
Personal financial advice offered using efficient
channels such as web tools, phone and workplace
services
Full Financial Planning
Most likely to be taken up by members who are
approaching or are in retirement
Free or
very low
cost
Fee for
service
cost
Modelling undertaken by Rice Warner Actuaries on behalf of ISN suggests that the proposed prospective
ban on commissions will stimulate the provision of many more pieces of advice at a lower average cost,
with minimal long-term impact on the income and employment of financial advisers. Rice Warner
estimates that by 2024, consumers will receive nearly 910,000 additional pieces of advice than would have
been the case with no regulatory change. This increase would largely be driven by a rapid expansion in the
supply of inexpensive simple advice, which would be taken up by low-to-middle income Australians who
currently receive little or no advice, or who pay for full advice that they do not use.
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In addition, Rice Warner expects that by 2024, there will be 3,405 advisers supplying simple advice, an
increase of 124 per cent. The market for this growth will come chiefly from industry fund members and
bank customers.
However, it is ISN’s view that intra fund services will continue to build even if Labor is not re-elected,
although the pace of growth may be slightly slower.
Another trend which is likely to result from the expansion of intra fund advice offerings is that over the
longer term, it will lead to an increase in demand for more traditional financial planning services.
ISN strongly believes that members having a positive experience of intra fund services and benefitting from
the additional wealth they may accumulate will be more likely to appreciate the value of financial advice and
be more likely to seek out further financial advice services. So reform measures to increase the professional
obligations of financial planners, increased member engagement and financial literacy in addition to a
positive experience of ‘intra fund’ advice is going to increase the perceived value and thus take up of
financial advice in the future.
7. Conclusion
Industry super funds have long been criticised for being ‘anti-advice’ because of their long running
campaign against commissions and other forms of conflicted remuneration which are typical in most
financial planning businesses. However, in the next decade it is likely that superannuation funds will
become major players in the provision of financial advice through the provision of intra fund advice services.
Members of funds stand to significantly benefit through the receipt of advice on their super which is very
low cost and delivered in their best interests, particularly where they are engaged at a younger age.
A year since the publication of RG200, there has been a significant strategic shift in the positioning of
financial advice services by industry super funds. With funds working towards providing simple and
cost effective limited financial advice services to members to assist them to take full advantage of their
retirement savings, it would seem that the policy objectives which led to the production of RG200 are likely
to be realised.
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August 2010
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fund advice - Industry Super Australia

Transcription

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