Although the financial planning sector didn't initially welcome intra-fund advice with open arms, the industry has since warmed to the concept, viewing it as an opportunity for more Australians to access a form of basic financial advice from their superannuation fund.
Despite the fact the industry now sees a place for intra-fund advice, it certainly doesn't support the government's proposal to expand this to more complex matters like transition to retirement, income streams and social security.
Hence, many stakeholders within the financial services industry argue these areas are far beyond the duties and expertise of superannuation fund trustees.
As Financial Services Council (FSC) chief executive John Brogden notes, the principles underlying this approach are in direct conflict with the objectives of the Future of Financial Advice (FOFA) reforms. "Expanded intra-fund advice is the wrong answer and a poor substitute for the tailored, quality financial advice Australians need," Brogden says.
"Expanded intra-fund advice will see the cost of advice cross-subsidised, that is, paid for by members who don't receive advice and have no ability to opt-in or opt-out.
"Rather than unbundling advice costs it will actually sanction hiding advice costs inside the total cost of the product."
He adds that the expansion to intra-fund advice is not only a lack of transparency, but it also eliminates consumer control and results in the majority of fund members paying for something they don't receive.
Association of Financial Advisers chief executive Richard Klipin also argues it's the wrong strategy for the matter. "The issue around superannuation funds to deliver technical, sophisticated strategy in an intra-fund environment is fraught with danger," Klipin says.
"Advice is a personal and professional service, it talks to the individual, the family unit, the business unit around their goals and their aspirations and then there's a plan put in place to achieve those objectives.
"Dealing with a super fund's advice call centre removes all of that personalisation, it removes all of the ability to tap into the drivers and the needs of the client and it effectively dumbs down the offer.
"So those are the issues around intra-fund advice. It's not a threat to the financial advice marketplace; it's just poor public policy."
While the FPA sees a place for intra-fund advice, it too does not support the proposed expansions, deeming them inappropriate and a potential threat to the financial planning industry. "If you expand intra-fund advice to areas like transition to retirement, Centrelink and pensions, for example, we have a real concern," FPA policy and government relations general manager Dante De Gori says.
"Because there's no way you can provide advice on a transition-to-retirement strategy without knowing the client's full circumstances, you can't just rely on what the client has with one superannuation product.
"Instead, we're looking at things which can allow potential advisers to play in that segment of the market more easily, such as looking at more guidance from ASIC about providing limited and scaleable advice, perhaps more clarity around that because even though it's legally possible now, many planners don't. And there's obviously a number of reasons for that in terms of uncertainty of the law, uncertainty of regulatory compliance requirements and so we see potentially a clean-up from that perspective to help. "Also, potentially a review of the criminal sanctions, for example, as to whether or not they're actually playing the appropriate role or are they indeed stopping innovation and financial planning businesses actually operating in that segment of the market."
It's not just industry bodies that are troubled by the proposed expansions; financial planning dealer groups and superannuation funds are also concerned.
"There appears to be a misnomer that an item such as transition to retirement is a simple calculation based on the member's superannuation balance at preservation age," Centric Wealth Advisers principal wealth adviser Roger Hancock observes.
"A lot more needs to be taken into account, such as the inter-relationship of rebates and tax offsets, like the low income tax offset, mature age worker tax offset, and the impact of reportable employer superannuation contributions. Further, without a full and comprehensive analysis, benefits paid from Centrelink may be compromised.
"One thing to remember is that a fundamental consideration of effective and quality advice is the consideration of a client's individual circumstances and the appropriateness of the advice in regard to the client's entire financial position, not just within superannuation or the fund."
Meanwhile, UniSuper executive manager of financial planning Chris Davies agrees certain aspects of Centrelink advice take the discussion outside the field of superannuation and therefore are not appropriate for intra-fund advice.
"Where I draw the line is intra-fund should be to do with anything with that super fund, and transition to retirement is usually all about the member's interest in that particular super fund, so I think that's appropriate," Davies says.
"However, Centrelink often involves other issues to do with members' savings outside of the fund, or even other funds, and I think that's beyond the scope of intra-fund advice."
A matter of fiduciary duty
While there's clearly a gamut of concerns around the proposed expansions, add to the mix the fiduciary requirements and how they apply to intra-fund advice and some industry stakeholders will argue an uneven playing field has unfolded. "The first thing that's wrong with intra-fund advice is that it ends up with an uneven playing field, so there are some rules for advisers and then there are some rules on the intra-fund market. This unlevel playing field is also in our view bad policy in terms of addressing the underlying issue," Klipin observes.
"I think that's the issue, this level playing field, and everyone has an obligation to act in the best interests of their clients. Let it apply to everyone providing advice, be they retail financial advisers or super funds providing advice.
"The danger in all of this is that if it's not tested until after failure occurs, then we definitely headed down the wrong track and there's lots of collective experience in the marketplace that says today that intra-fund is not in the best interests of the consumer."
Hancock shares this sentiment. "At the end of the day, the fiduciary duty requirements should be for all financial planners, including those providing intra-fund advice, to advise in the best interests of their clients and to place the best interests of their clients ahead of their own, or the superannuation fund, when providing advice," he says. However, Davies points out that trustees of superannuation funds already have a fiduciary duty to members. "So it's a natural flow on to the advisers operating under the trustee's AFSL [Australian financial services licence] that they will also act in a fiduciary capacity," he says.
"Legislating this, to me, is just making something compulsory that already exists for advisers operating under super fund trustee-owned AFSLs."
Should funds separate the cost of advice?
Furthermore, when it comes down to whether superannuation funds should be made to separately detail the cost of providing intra-fund advice, Davies argues funds should not be made to do this.
"I think it's almost impossible to work out exactly the costs of providing a single piece of advice when much of the support infrastructure is shared with a large superannuation fund administrator. So I don't think we should try to detail those costs," he says.
Similarly, MLC general manager of advice solutions Greg Miller is not concerned about the separation of costs in an intra-fund advice environment.
"I think that the customer very well understands who is giving the advice so the thing that's made very clear here is that there's not a view that we're giving separate advice or you're paying for advice that's broad across the market," Miller says.
"The customer is made aware that advice is being given in relation to their superannuation fund to which they're a member and I think it comes down to the fact that a superannuation member then has to decide whether they think that's a good use of their member costs or not."
On the other hand, Hancock is adamant a superannuation fund should clearly disclose the cost of intra-fund advice to its members.
"A transparent separation and disclosure of the superannuation fund's administration fees and any fees paid by the member to access intra-fund advice should be shown in detail," he argues.
Klipin agrees. "Look this issue around a level playing field and remuneration, everything that applies to the retail sector needs to apply in the superannuation sector; transparency, pricing, volume rebates, these are the things that again what's good for the goose has to be good for the gander and everyone has to play by the same rules," he notes.
Likewise, De Gori adds it all comes back to transparency and trust.
"You have to be able to be very transparent and disclose all your costings, all your remuneration with the client so the client truly understands what they're paying for and how much they're paying," he says.
"Now we think that should apply across the whole advice industry, not just for financial planners. Intra-fund advice is a form of advice, it may not be comprehensive financial planning, but it's still a form of financial advice. "So we think that it's unfair and it's not a level playing field if you have trustees of superannuation funds able to promote to their members that intra-fund advice is free or is a reduced cost and not fully disclose how much they are spending towards the services of intra-fund advice.
"Just like with the opt-in issue, there are plenty of members who will not take up the services of intra-fund and so they may be paying for that service even though they're not using it. So if it's good for clients to be able to know how much they're paying a financial planner and decide whether they want to use them or not, then why isn't it the same under a superannuation fund?"
Conflicts of interest
By the nature of the way intra-fund advice operates, one can't ignore the potential conflicts of interest that could also arise in certain circumstances for superannuation fund members.
In Hancock's opinion, the main conflict of interest around intra-fund advice is the relationship between providing advice in the best interests of the client ahead of the best interests of the super fund and the super fund's requirement to operate in the best interests of the members as a whole.
"Where is the obligation where the intra-fund advice is to roll over a large member benefit from the superannuation fund that in turn may have an impact on other members of the fund?" he asks.
Meanwhile, De Gori also admits there is a massive perceived conflict in this instance.
"There is this potential conflict where those providing intra-fund advice could be used to just enforce further contributions and further rollovers into the existing product," he says.
"I'm not saying that that's happening and I'm not saying that there is any evidence of that at this stage, but there is potential for that to happen by the nature of the way intra-fund operates. And the question is those people on the end of the phone providing that advice are remunerated and I'm not sure if they receive any incentives either so that's sort of a bit unclear as well."
Klipin shares a similar view. "The dangers of intra-fund advice is that with the exemptions they get under section 945a [of the Corporations Act] around know your client, know your product, means that a super fund will be effectively marketing advice within their own product," he notes.
"Look at it another way and it becomes a product sale opportunity and if there's anything to be learned from the failings in recent years, it is when product becomes the answer then you've got the wrong set of questions, and good advice is all about getting the right set of questions in the right point in time so the client can then act in the right away."
However, Davies points out a trustee's fiduciary duty is naturally passed on to its employees, including its advisers.
"Managing conflicts is part of meeting that fiduciary obligation and, provided the advice service is properly structured, for example, without commissions on products or remuneration linked to product sales, there should not be any major conflicts to be managed," he argues.
"Even so, awareness of the potential for conflicts and the open management and avoidance where necessary of conflicts is a requirement for the management of every advice service." Similarly, Miller does not see a great deal of conflicts of interest around intra-fund advice. "Providing it doesn't become a means of any special payments or any of those sorts of issues and I don't see any of those emerging," he says.
"So provided that doesn't happen I don't see a conflict of interest in the fact that someone is giving intra-fund advice around the member's own superannuation fund because I think it's very well understood."
He adds intra-fund advice will continue to grow through the community. "I see it as a real positive that the regulator and the government is thinking about the different ways to ensure advice is there," he says.
"I mean there's the odd adviser that's concerned about it, but most aren't concerned about it and the reason being is that most of our advisers have really worked through more of the space of critical and complex issues for clients, so therefore they understand that that's the place that they best operate."
Embracing intra-fund advice
Nonetheless, as intra-fund advice currently stands, there are ways financial planners can embrace the opportunity and use it to their advantage. "Trustees of superannuation funds can actually outsource the advice process to financial planners and some are doing that and we've seen more and more industry funds setting up advice businesses," De Gori observes.
"And they're not intra-fund models; they're either employing their own advisers or as I said they're expanding and there are financial planning businesses who are actually putting together business models or packages which are appropriate for members of super funds.
"There are many planners that do not obviously like intra-fund and see it as a threat, but there are also plenty of other advisers that are seeing it as an opportunity to provide that service because a lot of trustees don't have that skill and expertise or resources to do it themselves and hence they are potentially outsourcing it."
Should the expansions to intra-fund come to fruition, De Gori says the FPA would be encouraging trustees to use planners to provide that advice to their fund members.
"We actually see it as a consumer protection issue that if intra-fund is expanded to transition to retirement, we actually think it's not in the consumers best interest to receive that advice without the person that provides it having consideration of the client's full circumstances," he says.
In the meantime, Davies says those advisers who are with institutionally-owned dealer groups, where the organisation develops its own superannuation products, should try to get themselves brought within the scope of intra-fund advice.
"That is, it's not limited to industry funds, and retail funds could also authorise advisers to offer intra-fund advice on their behalf. Here the rules about the ownership of the AFS licence which provides the intra fund advice are critical," he notes.
