Media Release: “Opt in” necessary to protect super savings

Industry Super Network (ISN) has urged all Parliamentarians to support the government’s opt-in proposals, designed to prevent Australians’ super savings being eroded by un-necessary asset based fees paid to financial planners, where no ongoing advice is being provided. The government’s proposals under the Future of Financial Advice (FOFA) legislation, permit financial planners to charge ongoing asset based fees, but require them to seek approval from their clients that they wish to continue receiving and paying for advice. This is necessary because there is substantial evidence that millions of Australians pay ongoing sales commissions and advice fees without receiving financial advice.

Read the Media Release here.

“Opt in” necessary to protect super savings

Industry Super Network (ISN) has urged all Parliamentarians to support the government’s opt-in proposals, designed to prevent Australians’ super savings being eroded by un-necessary asset based fees paid to financial planners, where no ongoing advice is being provided. The government’s proposals under the Future of Financial Advice (FOFA) legislation, permit financial planners to charge ongoing asset based fees, but require them to seek approval from their clients that they wish to continue receiving and paying for advice. This is necessary because there is substantial evidence that millions of Australians pay ongoing sales commissions and advice fees without receiving financial advice.

Read the Media Release here.

Media Release: Financial advice cleanup will boost super savings of millions of Australians

Media Release by Industry Super Network states that the draft legislation released today by the Federal Government to enable the Future of Financial Advice (FOFA) reforms will stop millions of people paying for financial advice they don’t receive and build aggregate national savings by billions of dollars.

Read the media release here.

Financial advice cleanup will boost super savings of millions of Australians

Media Release by Industry Super Network states that the draft legislation released today by the Federal Government to enable the Future of Financial Advice (FOFA) reforms will stop millions of people paying for financial advice they don’t receive and build aggregate national savings by billions of dollars.

Read the media release here.

Roy Morgan research supports need for ‘opt-in’ provisions

ISN analysis of recent Roy Morgan research suggests that more than two million superannuation members in Australia are paying ongoing advice fees or commissions where there has never been communication with a financial planner. This alone is evidence enough for adopting the financial advice ‘opt-in’ provisions, says Robbie Campo, Manager – Strategy for ISN.

The Government’s proposed ‘opt-in’ provisions for financial advice have generated stormy debate over recent months. Strongly supported by industry super funds, consumer groups, accounting professionals, industry bodies, and financial journalists and commentators, the provisions are being hotly contested by retail super funds, major financial institutions and some quarters of the financial planning industry. And the debate’s not over yet.

“The Government has proposed a consumer protection mechanism to prevent consumers paying ongoing fees for financial advice they are not receiving by allowing them to ‘opt-in’ for advice every two years,” says Robbie. “This will ensure that consumers do not pay for advice that they do not receive.

“The ‘opt-in’ requirement is designed to better align the provision of advice with charging, and consumers overwhelmingly support opt-in requirements. A 2011 survey undertaken by Newspoll for ISN found that 75 per cent of consumers support an annual opt-in for ongoing fees. However, fierce opposition from some parts of the industry may weaken the reforms, which would be a great loss to consumers.”

In July 2011, Roy Morgan released independent research (the Retirement Planning Report) following a survey of 1,597 Australians who have superannuation. Of those respondents identified as retail fund members, 52% had never communicated with a financial planner, and a total of 72% did not have regular communication with their financial planner.

Based on this research, ISN estimates that two million superannuation members in Australia are paying ongoing advice fees or commissions where there has never been communication with a financial planner. It estimates a further 0.8 million members are paying ongoing commissions or advice fees even though they are not regularly receiving financial advice.¹

“These numbers are further evidence that the ‘opt-in’ provisions are an integral part of the financial reform package,” comments Robbie. “Removing these provisions would make it possible for financial advisors to structure fees, deducted from client savings, in exactly the same way that a trailing commission operates.”

The ‘opt-in’ provisions are closely linked to the Government’s proposed ceasing of conflicted remuneration, including the ban on commissions.

ISN believes the ‘opt-in’ provisions are critical to ensure the efficacy of the ban on conflicted remuneration, as ongoing advice fees are indistinguishable from sales commissions in a number of ways including:

• commissions and ongoing advice fees average about 0.5%
• ongoing advice fees have an erosive effect on compulsory, concessionally-taxed super savings
• ongoing advice fees generate a conflict of interest – only retail super funds permit the deduction of ongoing advice fees and will therefore continue to be favoured by financial planners (retail super funds have underperformed industry super funds by an average of 1.7% over the past 10 years²)
• fees are less visible to investors, as they are deducted from an investment periodically, their cash quantum is not known up-front and they are therefore less visible than an explicit fee- for-service arrangement.

The ‘opt-in’ requirements will only apply to ongoing fee arrangements, regardless of whether they are a fixed dollar amount at specified intervals or a percentage of funds under advice.

For further information, contact Robbie Campo at rcampo@industrysuper.com

To read the ISN report, click here.

¹ Estimating super members paying for advice which they don’t receive, Industry Super Network, August 2011

² Sources; APRA (2009), SuperRatings (2010) and Rainmaker (2009c)