Advisers need to take industry superannuation funds to task for blatantly devaluing financial advice when, in many cases, they offer it themselves.
I was sitting watching my favourite footy the other day, when along came the ‘Compare the pair’ advertisement, explaining how one person got a better result because their superannuation fund didn't “pay commissions to financial advisers”. Not for the first time I started muttering under my breath, with the occasional audible expletive.
Why is it that industry funds insist in their publicity on attributing the costs of financial advice to superannuation, and only superannuation? Why do they so blatantly devalue advice when, in many cases, they offer it themselves? They clearly know better, because many of them have in-house advice teams. I hope those advice teams are looking at their members’ full circumstances, not just their superannuation balance, because if they aren’t, the members will be poorly served indeed.
If I, as an adviser, charge a fee for looking at the entirety of my clients’ circumstances, somehow the industry funds seem to think that this is a cost that they do not charge for and, therefore, this differentiates them from their competitors.
To be sure, this is a legacy of the commissions versus fees debate. My view of that argument, which seemed to go on forever, was that the debate was largely irrelevant as both sides of the discussion merely represented a means by which the adviser could get paid.
Our advice industry was largely founded on an insurance business which relied on commissions as a means of remuneration. This evolved into being paid as a percentage of the assets we managed, but somehow or other the expectations of what financial advisers do moved on without a similar move in how we are paid.
I would argue that for too long this artificial mechanism has been used by our industry because it was easy and convenient, and did not disrupt the cash flow of the businesses. The institutions have been happy to collect the money for us either in terms of a percentage or in terms of a fixed fee, and we have embraced their co-operation with gusto.
Back to the industry funds. Do they argue that they provide the same kind of advice about the totality of a client’s circumstances at no cost or do they even have the capability to be able to do so. If asked about reducing a client’s debt versus additional contributions to super, what do we think they would say, and what would be their basis for saying it. If they do have the capability, and some of them do, how much do they charge for providing that advice and how is it disclosed in the various statements they send out to their customers.
The ‘Compare the pair’ statement that industry funds don’t pay commissions to financial advisers is misleading. If there was no advice, then in today’s world, the adviser has no business charging for it regardless of how it is calculated. I have clients who maintain their superannuation funds in an industry fund, and I charge a fee based on the value of the work I carry out for them regardless of this fact. What I am, in many cases, unable to do is easily obtain any information from the industry fund which would assist me in providing quality advice to my client, and I am usually unable to be listed as the adviser on our client’s industry fund account.
On many industry fund websites, there is a section which discloses the fees you will be charged if you seek in-house advice from advisers employed by the fund. This seems never to have been taken up if the advertisements are anything to go by, and yet I know a number of excellent advisers who work for industry funds and who seem to be making a pretty tidy living.
Like so many other things, the quality of financial advice often has a proportionate relationship with the amount you pay for it. There is plenty of advice available for free in the pubs or at barbecues across Australia. Our industry superannuation fund friends do in fact charge for advice, as they should. What they don’t do is disclose this fact in their publicity, perhaps on the basis of semantics as to what is a commission and what is an advice fee, and by doing so they seek to mislead for economic advantage. As a profession, we need to take them to task.
Paul Wright is managing director of Innovus Advice Solutions