A proposal to allow superannuation funds to provide advice to members is inequitable, with all of them being charged for a service only some may use, creating a ‘fee-for-no-service’ model, according to the Institute of Financial Professionals Australia (IFPA).
IFPA made the claim as part of its submission on the Delivering Better Financial Outcomes exposure draft legislation, noting that allowing trustees of Australian Prudential Regulation Authority (APRA)-regulated funds to collectively charge members for advice would be complex and need clearer limits and disclaimers.
The submission highlighted advice could be provided where it related to the superannuation product held within the fund and lists of topics and circumstances for that advice would be created, and this would reference other areas, such as household income and cash flow, assets outside super, a spouse’s financial situation, debt levels and eligibility for government support.
“These broader elements may be relevant to the context of superannuation advice, but their inclusion within a collectively charged model creates risks,” IFPA stated in the submission.
“Specifically, it creates the impression that members are receiving full personal or holistic financial advice.
“This blurs the line between intra-fund advice and comprehensive personal advice. This is a problem when members believe they are being offered a wide-ranging service when in fact it is limited to the fund’s own products and options.”
It added the collective funding model also raised questions around equity for members who do not use or need the advice subsidising its cost for others and could replicate the fee-for-no-service issue that existed in large financial services firms in the past.
“We recommend adopting a fee-for-service model under which members pay only when they receive advice. This ensures that advice is delivered on a needs basis and prevents members from being charged for services they neither use nor value,” it said.
“Additionally, to avoid confusion about the nature and scope of the advice provided under the collective charging model, we recommend that trustees be required to include clear, prominent disclosures explaining the limitations of the advice.”
