Tail between its legs

HE INDUSTRY Super Network (ISN) recently reiterated calls that financial advisers should consider industry super products for clients based on the sector’s long-term outperformance – but there are other factors to consider.

One is the new best interests duty for advisers (if we can pretend for a moment that advisers were not already obliged to act in the best interests of their clients).

Even prior to the implementation of Future of Financial Advice (FOFA) changes, you would not have to go far to find an adviser who would say he or she has clients with their super in an industry fund because there is no reason to move them out of it.

But what about actually moving a new client into an industry super fund?
The ISN argues the sector’s historical returns suggest planners may be obliged to recommend industry funds based on the new best interests duty.

“Under new laws, financial planners are required to act in the best interests of their clients,” ISN chief executive David Whiteley said in a recent statement.

“Given that fund performance is one of the most important factors in choosing a super fund, industry super funds should come out on top in the recommendations of financial advisers to their clients.”

But of course, as any planner is aware by his or her first day on the job, past performance is no guarantee of future returns. It’s a mantra echoed across thousands, if not millions, of product disclosure statements around the country.

Nevertheless, advisers would be obliged to at least consider industry funds, particularly for non-high net worth clients, but a recent raft of regulatory change – parts of which were largely driven by the ISN – has effectively removed much of the industry fund sector’s point of difference.

Planners can no longer grab a lifelong trailing commission from shifting a client’s super, regardless of whether the new investment is in the client’s best interests. Further, most major providers are now offering, or will soon be offering, a MySuper product.

MySuper products, by their nature, will generally be simple low-fee products. So the low-fee argument is disappearing from the industry fund argument, as is the ‘does not pay commissions to financial planners’ angle.

Judging from the ISN’s public communications this year, they will be continuing with the ‘all profit to members’ angle. But advisers argue, and they have a point, that there are considerable costs, often poorly disclosed, that come out of the fund prior to said profit.

For example, the often significant and poorly disclosed director’s fees, advertising campaigns, corporate sponsorships and hospitality packages (such as for major sporting teams), not to mention the poorly or non-disclosed arrangements with other service providers.

For many industry funds, intra-fund advice is now ‘free’ to members – but good luck working out how much of your admin fee goes towards a service that each member may or may not use.

Back in March this year, this column discussed a one-day symposium, hosted jointly by the ISN and Industry Fund Services, at which Financial Planning Association chief executive Mark Rantall was a guest speaker.

He was warmly welcomed by both ISN chief executive David Whiteley and the crowd – at least one third of which raised their hands in response to his question “Are there any Certified Financial Planners in the room?”

We wrote then that the two previously at-odds sectors of the financial services industry – retail advisers and industry super – were on the path to burying the hatchet.

The ISN, for its part, has laid off its ‘Compare the Pair’ campaign that attacked commission payments to financial advisers, although Mr Whiteley has said publicly several times since that the campaign was about attacking conflicted forms of remuneration, never about attacking advisers more broadly.

Another sign of the ISN’s more conciliative approach was the announcement at the Financial Services Council (FSC) conference in August that the two bodies would be teaming up on policy advocacy.

But there is also a limit to how closely that friendship will develop, given full members of the FSC include major retail super providers such as BT Financial Group and AMP – the very groups the ISN continues to suggest people avoid entrusting with their retirement savings. «