‘No use fighting it’: Johnston tells advisers to ‘embrace’ industry funds

The executive director of the Association of Independently Owned Financial Professionals (AIOFP) has penned a letter to his member base defending his earlier proposal for a new advice structure that’s inclusive of superannuation funds.

In the proposal, Mr Johnston said advice providers should fall into either the relevant advice provider, non-relevant provider, or risk insurance advice provider category.

He explained that AIOFP is in line with Financial Services Minister Stephen Jones’s position that including superannuation funds in the advice process is preferable to allowing banks back into the fold.

Moreover, Mr Johnston said, “the provision of factual information by super fund trained staff is not detrimental to members” and added, “it will significantly reduce the cost of providing advice”.

“This process is also not a threat to services provided by most external relevant advice providers who cannot service this end of the market due to prohibitive compliance costs,” he said.

In a follow-up email, made available to ifa, Mr Johnston told AIOFP members that although “it is hard for some to accept this outcome”, “this was always going to happen”.

“No use trying to fight it,” he said. “Just embrace it, with gritted teeth for some.”

Mr Johnston declared that industry funds (IF) have “won the war against the banks” and that they “arguably” need independent advisers to assist their business model.

“Firstly, they are NOT ‘union funds’, yes, they are favoured by the union movement BUT around 50 per cent of their directors are from the corporate/independent market and they give donations/support equally to both sides of politics … i.e., unions and corporates. They also have APRA watching them like a hawk,” he said.

Mr Johnston said AIOFP thinks the minister will allow internal super staff to give information to fund members without the need to be licensed which, he said, “makes practical sense”.

“This gives the option of having in-house licensed advisers or outsource financial advice to the independent advice market.

“If a fund was facing the option of AFSL risk/cost of their own internal adviser at say $200,000+ or outsource it to an independent adviser that keeps the account balance intact, works on a fee-for-service basis with the fund member, therefore no subsidisation, which is the way all advice should be, and may give inflows from their own business, what would you do?”

The AIOFP head further suggested funds “only need to train up mid-range internal staff” to give product, Centrelink, and generic transition to retirement information.

“If I was an internal adviser working in an industry fund, I would be looking at other opportunities. In fact, yesterday I got a call from an IF which is merging with a bigger one and they want help to find new opportunities for all their internal advisers who are getting a redundancy cheque,” Mr Johnston said.

“This is not an ‘expected trend’ … it is happening right now and it will be more than likely a win-win-win outcome for all participants, IF, consumer and independent adviser, and the minister, in our view.”

Mr Johnston has been a staunch opposer of the Quality of Advice Review (QAR), which suggested that superannuation funds, alongside banks and insurers, should expand their advisory role.

Back in February, he said AIOFP is “unashamedly and unapologetically” representing the “best interests” of advisers in opposing the QAR.

A month later, he said he is categorically opposed to the return of superannuation funds, banks, and insurers to advice. Quoting research by Super Consumers Australia, which revealed only 25 per cent of Australian adults look to the expertise of professionals (e.g. advisers) to assist with retirement planning, Mr Johnston argued that the current number of advisers is sufficient to meet these requirements.

“Of course, we want some more advisers back in there, but when you look at the performance of the funds being managed by some of these institutions and the quality of advice, which is what came out of the royal commission, you don’t want their advice anyway,” he said.

“We think there are enough advisers, but there should be more, and we think that the quality and standard of advice coming out of the banks and the other institutions, in the last 10–15 years, has been extremely poor.”

Asked about this change of heart, Mr Johnston told ifa that “because we don’t have an ideal world”, “super funds are better positioned than banks”.

He added that AIOFP still opposes manufacturers having internal advice functionality.

“Non-relevant providers will not be ‘licensed advisers’, they will be existing staff conveying product and related information to super members, not advice,” he explained.

“The super fund will then have a choice of internal relevant providers at $200 – 350,000 per head delivering advice to members or outsource it to independents for minimal cost … and likely to get their client inflows and mitigate AFSL risk … it’s a no-brainer especially with APRA pressuring over costs.”

Last month, Mr Jones said the government will accept 14 of the 22 QAR recommendations, including the one pushing for a larger role for super in advice.

Expounding on the government’s thought process at the time, Mr Jones said funds “must play” an expanded and more effective role that serves the needs of their members.

“In fact, government has already told them they need to do more,” the minister said, and added that funds are “well-suited to safely meeting the needs of their members”.

The minister, however, clarified that further consultation may be necessary to address questions regarding the scope of advice that can be provided by a fund, the education standards needed for an employee or representative of that fund, as well as how funds are held to an appropriate duty.