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Parliamentary Joint Committee on Corporations and Financial Services
Cormann, Sen Mathias
Boyce, Sen Sue
Thistlethwaite, Sen Matt
Fletcher, Paul, MP
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Parliamentary Joint Committee on Corporations and Financial Services
(Joint-Tuesday, 24 January 2012)
CHAIRMAN (Mr Ripoll)
Mr TONY SMITH
Mr TONY SMITH
Mr TONY SMITH
Mr TONY SMITH
- Senator CORMANN
Content WindowParliamentary Joint Committee on Corporations and Financial Services - 24/01/2012
GALBRAITH, Ms Fiona Anne, Senior Policy Adviser, Association of Superannuation Funds of Australia
VAMOS, Ms Pauline, Chief Executive Officer, Association of Superannuation Funds of Australia
CHAIRMAN: I welcome the next witnesses to the table from the Association of Superannuation Funds of Australia and invite you to make some opening remarks.
Ms Vamos : Good morning and thank you for the opportunity to present today. As most of the panel knows, our association represents and advocates on behalf of all superannuation sectors. We are about ensuring that the best interests of fund members are met. In terms of this inquiry and the 14 recommendations we believe those recommendations are very sound. The raising of minimum standards in the financial planning profession is a very important task that has to be achieved. It is worth noting that there are a number of financial planners who do already meet best practice standards. Ensuring payments are transparent, appropriate and regularly reviewed with clients is also very important particularly if they are directly taken from an investment.
Due to the asymmetry of knowledge and the level of reliance that many clients have on the advice of their adviser it is important that we do have a very workable best interest duty. The debate on how the policy should be delivered is a very important one and, as we look at the legislation, ensuring those outcomes are achieved is very much part of our brief. The core approach to future financial advice is to ensure that simple, single-scenario advice is delivered about superannuation, whether that person is within or outside a fund. People should be able to be provided with advice on a cost-effective basis. Which fund should I choose and why? Which fund should I consolidated my accounts into? What investment portfolio should I put my money into? What insurance cover should I have within my super? How much should I contribute? Should I take a pension and what about an annuity? They are simple questions that deserve some advice.
I am talking about the average consumer. I am not talking about people who have money within the fund and a lot of money outside superannuation. I am talking about apprentices, about people who have very little money and the average consumer who has their house, usually mortgaged, and their superannuation. We have a compulsory system, so it is quite important that it is treated differently. Accordingly the focus of our submissions, which I believe have been provided to the panel, is about how we ensure that the legislation delivers scaled advice and intra fund advice.
It should be noted that the majority of superannuation providers across all sectors already provide intra fund advice. The take-up of simple advice about super is increasing. The average cost of providing, whether simple financial planning advice, general advice or call centres, is a relatively minor part of the operational fee of a superannuation fund. Simple advice, general advice and actual information, including education to clients, is all delivered by call centres with different level advisers in it. Because you can develop that scale, it is being delivered efficiently now.
We agree that the delivery of scaled advice particularly for independent financial planners to be able to deliver single-scenario advice is a very important outcome we need to achieve and we agree that at the moment under current legislation it is difficult for them to do so.
I think that it is also very important to note, as we speak across all sectors, that there was a general agreement that the outcomes being proposed are very, very good and very, very sound and in the consumers' best interest. But as we all know, and there are many examples throughout history, if the legislation is not right then you are going to have a perverse outcome particularly at this time of increased litigation. We want to ensure that there is not a need for a full protection, a buckles-and-braces approach to compliance that will mean that financial planners particularly, whether inside or outside a fund, cannot provide scaled advice.
CHAIRMAN: There is a range of issues contained in FOFA which some people have perhaps misinterpreted or expressed some concerns about. I am interested in your interpretation and your views on a range of issues particularly the 'best-interest' test and how you see it applying and impacting and whether it is workable in its current form.
Ms Vamos : Our most recent submission was on 18 January when we highlighted what we think are some wordings. As we said in an earlier submission, our concern is to ensure the best-interest duty works, so the concept is correct. Everybody knows that you have got to act in the best interest of members.
The sticking issue seems to be how you agree with a client what you are going to talk about. We have asked our members to test the current wording and the ability to agree on the scope of the advice seems to be difficult under the current wording. I will give you an example. Suppose I am speaking to a client—and it may be a member who rings the fund—who says, 'I just want to talk about the rollover of this account into your fund. I want to know the pros and cons so I can assess whether or not it is the right thing for me to do.' Now, as you know, with a lot of funds the insurance can be basic or it can be much greater insurance, and often the issue is raised: 'What we should do before we talk about this is look at your insurances to see whether or not in rolling over you should take up the maximum amount under your new fund or keep to the level you have.' So the client then says, 'No, I only want to talk about rollover. I do not want you to talk about insurances and I do not want to give you any more information.' Some of our members are saying that on the literal interpretation of the current wording you would not be able to go any further with that client. So if you really feel that you need to do a full assessment of the insurance, it would be hard for you to then proceed with the consolidation.
We do not believe that this is the intended outcome of government policy and we do not believe it is the intended outcome of the legislation. But as we know, as time goes through with regulation, with AAT and with courts, it is open to much more tightening. So we suggested some wordings there just to allow that scoping to be a little bit easier. There was an agreement between the client and the adviser about the scope but not about the product, if that makes sense.
CHAIRMAN: It does. Can you take is a bit further in terms of best interest and the impact it would have? FOFA has introduced best interest. As it currently sits, what would be the impact, generally speaking, on large to small organisations providing advice? Are they already at the standard, at the bar, or is it a significant leap for a range of organisations and individuals to meet a best-interest test or duty?
Ms Vamos : Many advisers both within the superannuation industry and outside it would argue that they already meet the best-interest test. Whether that test is met in terms of the actual safe harbour, as outlined in the legislation, it would be hard to prove. I do not believe a lot of the compliance regimes currently in place—and I can only refer to my previous role as a consultant—are set up to meet each one of those tests.
So there was no doubt there would have to be a change in any compliance program to ensure that each of those tests could be proven if you decided to go down that path. We have to acknowledge that the test under the Corporations Act at the moment for 'reasonable basis for advice' is different from the best-interest duty and therefore, quite naturally, the programs will have to be changed, which will be at some cost.
CHAIRMAN: The evidence provided to us is that most in the industry believe they already meet or exceed—there is certainly a willingness to go down that path. But perhaps what you are saying is that the actual compliance is about proving it rather than saying that you meet it.
Ms Vamos : That is right. Exactly.
CHAIRMAN: So certainly that path about meeting best interest is well and truly progressed, it is already being done, regardless of whether FOFA comes in or not.
Ms Vamos : Whilst I have not got any specific research on that, certainly the bulk of our members would argue that they already meet the best-interest test.
CHAIRMAN: A number of issues have been raised with the committee about the capacity of frontline staff to provide general simple advice, particularly on banking products, and whether the conflict in remuneration models ought to apply, or do apply, under the current legislation. Do you have an interpretation of FOFA in terms of the capacity of, for example, frontline tellers to provide that advice?
Ms Vamos : In terms of frontline tellers we do not have a view because it is not part of our brief. But certainly I think you can look at call centre staff. The majority of general advice at the moment in the superannuation industry—and the majority of funds do provide advice and they provide general advice—is provided by call centre staff. There are a range of incentive programs provided and many of them do take a balanced scorecard approach. There are some members who do provide incentives—for example, if you see a number of people, or if you are an outbound call centre, the number of people you have advised to roll into your fund who have taken up that advice. In terms of whether the majority of providers do that, particularly across our membership, I would have to say that I do not believe so. But I do not have actual data on that.
CHAIRMAN: Do you see it as problematic for a call centre or anyone else to try to incentivise their staff to work a bit harder?
Ms Vamos : We have canvassed our members, which includes the whole industry, and that issue has not been raised. What was a concern very early in the piece when the draft legislation came out was 'any incentives at all'. For example, if you have somebody who takes 50 calls a day and somebody who takes only five calls a day—not because they were long calls but just because they were not at their desk; they were having coffee—then you should be able to provide an incentive for someone sitting at their desk and servicing the customers who are calling in. We had discussions with Treasury very early on and we wanted to make sure that incentives as to quality of work and productivity of work—output—were not compromised. We believe with the current draft legislation that the only incentive that is banned is really based on selling product and the amount of funds under management that you bring in. So there is no incentive allowed on that. So, from an ASFA point of view, our members have not raised this as an issue that we should bring forward.
CHAIRMAN: Within superannuation funds there would be a number of older products and some legacy products. We have heard a lot of evidence about grandfathering and anti-avoidance. Could you give us your view on whether there is a conflict in terms of the anti-avoidance measures and the grandfathering provisions?
Ms Vamos : There is no doubt across all sectors, whether not for profit or for profit, that legacy systems as a result of product development and mergers have been a very active activity for the last 20 years throughout the industry. So changing all systems at the one time is difficult. Many funds are operating under more than one system. So the main issue that has been raised by our members is that the ability to fully comply with all of the FOFA requirements by 1 July 2012 is going to be very difficult given the timing. We have advocated that, if a deferral is not available then a soft start at 1 July 2012 is appropriate. That means that funds and providers should be taking steps to comply with a hard compliance by 1 July 2013. Again, there are a number of precedents for this. We had this with FSR. We had it with managed investments as well. That enabled a transition, but still the consumer outcomes were being met. I think we have to be very clear about this: this is all about consumer outcomes.
CHAIRMAN: The issue of consolidation has been raised across the board. There appear to be quite a number of firms vertically integrating and quite a bit of consolidation obviously way ahead of any FOFA legislation being introduced. Is there a link between that consolidation and FOFA in your view? What is happening in the marketplace that is causing that consolidation?
Ms Vamos : In terms of financial planners, my sense is that the consolidation has increased. But on the other side of the coin I have a number of personal friends who are financial planners and what I am sensing—and this is a personal view, not an ASFA view—is that with FOFA coming in a number of individual advisers are seeing an opportunity. My financial adviser is a good example. They have been part of a dealer group for a long, long time. They have taken the opportunity to obtain their own AFSL. So, as has been predicted for quite some time, I suspect we will see a number of individuals who will obtain their own AFSL. They have got a group of clients that they will service and that will happen. With such an extensive change in legislation, particularly in remuneration and with the average age of a financial planner, a number will no doubt look at retiring early because it is a big change. The same thing happened with FSR. We had a contraction at that time of the number of people in the financial planning industry. There was not the appetite to make the change to their business so they got out early. With any time of legislative change you are going to have regrouping and consolidation and you are going to have restructuring of the industry.
Senator CORMANN: To start off, you were complimentary of the Ripoll inquiry report and its recommendations. Of course we are all very supportive of the Ripoll inquiry report. We thought it was an excellent report with great recommendations. It is a great shame the government has not gone ahead with implementing it swiftly. Of course, that report did not include a recommendation to introduce either a mandatory requirement for clients to resign contracts with their adviser on a regular basis or to ban commissions on risk insurance inside superannuation. What is your view on those two proposals, which were attached to the reforms by the government post the Ripoll inquiry report? I am keen to get your perspective.
Ms Vamos : In terms of the opt-in it is not an area which ASFA has advocated on. Again, the debate has been robust. I must acknowledge that we did do some very early research and, as a result of that research, two messages came out. One is that where you have an engaged client, a sophisticated client—and I would put myself in that bracket—the view was: 'If I did not want to deal with the advisers then I would terminate the relationship.' But there was an equally strong view amongst the more disengaged or less sophisticated client who said: 'I would like that opportunity to be able to review my relationship.'
Senator CORMANN: Which you can, of course.
Ms Vamos : You can; it is about proactiveness. The concept behind that policy is very much about those clients who are not able or not willing to proactively manage a relationship with an adviser.
Senator CORMANN: So the government should do it for them?
Ms Vamos : Again, from an ASFA point of view, we do not have a view on opt-in.
Senator CORMANN: Okay. Let us leave opt-in to one side. Do you have a view on banning commissions on risk insurance inside super? There have been different iterations. In April last year, the minister announced a ban of all commissions on all individual and group risks or like payments. Now that has been whittled down to a ban of commissions on group insurance inside super. We had evidence yesterday from people who said that if it is advised insurance, whether it is inside or outside super, the remuneration structure should be up to the parties involved. Have you got a view on where this currently stands?
Ms Vamos : There are two points I would like to make. The first is that wherever you have regulatory arbitrage it will drive behaviours.
Senator CORMANN: It will create distortions.
Ms Vamos : While ever you have distortion you will drive certain behaviours. What those behaviours are I do not think we can foresee but certainly any regulatory arbitrage is, I think, always something to be avoided in any legislation and in any policy. In terms of the ban on individual commissions within superannuation, the issue that has been raised with us—
Senator CORMANN: Are you talking about risk insurance?
Ms Vamos : Risk insurance within super. The issue that has been raised with us is this: the government's policy is very much when you receive individual advice about your individual cover and it is a stand-alone cover, so you are not part of an employer group, then commission should be able to be paid because you have got an engaged managed relationship with that adviser. Because of the nature of superannuation funds and because of the nature of the trust structure, the trustee buys the wholesale group policy. Where you have individual persons who are not part of employers but who are individuals putting their insurance under the fund because of tax purposes or efficiency purposes, they have individual cover, individual advice and are individually remunerated to the adviser. But because it is under a wholesale group policy they are still caught. So the concern—
Senator CORMANN: Do you think they should be, or do you think they should not be? I am just running out of time.
Ms Vamos : We are saying that the government policy was that they should not be caught—individual advice should not be caught. We say that in the current structure—
Senator CORMANN: When you have got advice risk insurance arrangements in the group insurance context, do you think they should be able to charge commissions inside super?
Ms Vamos : Group insurance commissions should be banned.
Senator CORMANN: Flat out.
Ms Vamos : Flat out.
Senator CORMANN: Even if there is advice involved?
Ms Vamos : Even when there is advice involved.
Senator CORMANN: How would the advisers be paid?
Ms Vamos : Most group insurance is provided as automatic choices through default.
Senator CORMANN: If it is automatic, if it is default insurance, I do not think there should be any commission. The question is when there is advice involved which, for example, achieves a lowering of the insurance premiums even if it is across a group insurance arrangement, should there be a capacity to charge commissions?
Ms Vamos : It depends what you determine to be group insurance. If it is clearly an individual relationship and it is effectively individual insurance—that is, it is part of a wholesale group policy—we do not think it should be banned because you have that regulatory arbitrage.
Senator CORMANN: Sure. Going back to the regulatory arbitrage argument, what I hear you say is that it is not really desirable to treat commissions on risk insurance inside super differently from commissions on risk insurance outside super because it drives behaviours and potentially creates distortions. Is that a fair reflection?
Ms Vamos : Wherever you have regulatory arbitrage you do have the potential for issues.
Senator CORMANN: Under the present drafting of the FOFA legislation, we believe that clients and advisers are prevented from drawing the scope of the advice. You talked to the chair about this. Do you think it is desirable for clients and their advisers to be able to agree to the scope of advice?
Ms Vamos : We think in terms of scaled advice there should be an ability to do that. It is a difficult balance because there is such an asymmetry of knowledge and there is such a high level of trust. The worst possible situation is that the adviser says, 'You only need to know about this and—
Senator CORMANN: What about me as a consumer? If I go in and say, 'I only want advice on this,' and then the legislation says—I am looking at the explanatory memorandum which says that the adviser has to consider the client's overall circumstances before being able to scale advice in the best interests of the client. I do not want the adviser to take my overall circumstances into account. I do not want to share them with him. I want to deal with a specific issue. Why should I not be able to do that?
Ms Vamos : You should be able to do it except that what should be an obligation for the adviser to do is disclose to the client and help the client understand the risks involved in that.
Senator CORMANN: Sure, and there is a best interests duty.
Ms Vamos : That is right. You have a best interests duty. Most importantly, if you really think limiting your advice to that is not in the best interests of the client, then you should walk away.
Senator CORMANN: Should the adviser be required as a matter of course to do a full fact find, even if there is an intention by the consumer to scale the advice that is sought?
Ms Vamos : You should be able to scale the information you seek to the scope of the advice you are providing.
Senator CORMANN: So there should not be then a requirement for a full fact find if the client is pursuing scaled advice?
Ms Vamos : There should not and there is not at the moment.
Senator CORMANN: Well, that is where there is some debate.
Ms Vamos : And that is the issue.
Senator CORMANN: I believe there is because I look at paragraph 1.33 of the explanatory memorandum which says explicitly that an adviser has to consider the client's overall circumstances before being able to scale advice in the best interests of the client. Now, for the adviser to take the overall circumstances into account he would have to go to a full fact find and we think that that goes too far.
Ms Vamos : And that is what we said in our submission.
Senator CORMANN: In Minister Shorten's own explanatory memorandum the point is made that there is an expectation that the number of advisers will reduce from about 16,000 by 6,800, who will be lost out of the system. Do you think that is a desirable outcome in terms of making sure that financial advice is readily available and accessible?
Ms Vamos : That is only one side of the equation. I think what we will see and we have seen in the last number of years is that there are a number of advisers who are already coming up through the ranks. We offer training in financial advising and there are a number of universities that offer financial planning courses. You will have a contraction in this industry for a short time because—
Senator CORMANN: The government talks about 2024. That is still a fair while away so that is a contraction between now and 2024.
Ms Vamos : You have an average age of financial planner over 55. You have very large changes to the way they need to structure their business. You will have people leaving the industry but you will also have people joining the industry. More importantly, if you look at what is happening with superannuation funds, as people get access to scaled advice the research says that they continue to get advice. If they have had access to simple help, then they will continue to get help when they need it. So to meet that demand you will need to increase the amount of people who can provide advice, so we will have an increase in advisers as the demand increases.
Senator CORMANN: That is not what the government is expecting, though. In their own explanatory memorandum, the government is saying that between now and 2024 the number of financial advisers will go down by 6,800. There has been a lot of evidence that, in anticipation of FOFA, a lot of advisers are either getting out or selling up. There is an element of concentration going on. Increased concentration means less competition and less diverse supply. It is not really a very good direction for us to go in if we want to have an efficient, transparent and competitive financial advice industry, is it?
Ms Vamos : It depends on the type of people that are leaving the industry. If the legislation is actually achieving the policy outcome of raising the professional standard in the financial planning industry—
Senator CORMANN: So, you think all the baddies are leaving and only the goodies are staying?
Ms Vamos : I do not know who is leaving the industry. All I am saying is that with any legislative change—and this is significant legislative change—you will get a significant changing of the industry. It is happening in the superannuation industry and it will happen in the financial planning industry. As I said I think we will see, as demand increases again, more people entering the profession.
Senator CORMANN: How do you think that the government's profile changes relate to the government's proposal under MySuper to formalise this concept of intrafund advice where members of a fund are charged for the cost of advice irrespective of whether or not they access that advice? They are charged hidden fees for personal advice provided to some members of the fund but not to all members. I thought FOFA was about increasing transparency and making sure that people got advice that they had paid for but, conversely, paid for the advice they got.
Ms Vamos : FOFA is also about ensuring that the average person, who cannot afford to go to a financial planner and would never think of going to a financial planner, can actually get some simple advice—
Senator CORMANN: Personal advice?
Ms Vamos : about interest in their fund.
Senator CORMANN: That is personal advice, though, right?
Ms Vamos : When you think of personal advice and you think of the scale of personal advice, intrafund advice is very much at this end. Most financial planners, independent financial planners, or large call centres do not have the ability to provide that sort of simple advice about the product that that client is in. They are just not able to do that.
Senator CORMANN: Why should advisers providing intrafund advice not have to comply with the same best interest duty requirements? Effectively, they would be limited to providing advice on products presumably from within their fund. So, there is a question around whether there are conflicts there. Of course, you have the question around hidden fees because a lot of people will pay for advice that they will never access. One hundred per cent of members will pay for advice access by three to 10 per cent of people in that fund. How is that consistent with FOFA?
Ms Vamos : To the first point, you have to look at the definition of intrafund advice. The policy is to limit the definition to the point whereby you can only provide intrafund advice about what the fund can provide payment for and about the interest that that person has in that fund. So, consolidation—
Senator CORMANN: Is it personal advice?
Ms Vamos : It is personal advice but at a very small level.
Regarding the cost of providing this personal advice, when you look at the total operating costs of a fund, 40 per cent of the operating costs of the fund go to administration. Seventeen per cent of that 40 per cent goes to providing financial planning and 23 per cent goes to providing call centres. In the majority of call centres, general advice is provided most of the time. If I have a client on the phone, and we are talking about less than 10c a week—
Senator CORMANN: I am not talking about general advice. If Mr Ripoll and I are both in the same super fund and he is a regular user of the intrafund advice option and I never use it, why should I have to pay for Mr Ripoll's advice?
Ms Vamos : The same argument could be applied to general advice. With any superannuation fund, whether it is the administration, whether it is the call centre, whether it is about factual advice or whether it is about access to the website, you will always have services that are provided that everybody pays for but not everybody takes up. What is important is that they are able to.
CHAIRMAN: Is it the same call centre model as in corporate super funds? We heard yesterday from the corporate super funds. They have a call centre and they do the same thing—
Ms Vamos : Correct.
CHAIRMAN: Is it exactly the same thing, in your view? Their view is that it is just a call centre. They do not call it intrafund advice; they just say it is a call centre.
Ms Vamos : Some funds only provide call centres, but the majority—
Senator CORMANN: We are talking about personal advice.
Ms Vamos : The majority do provide general advice and there are a number that provide scaled advice either directly or indirectly.
Senator CORMANN: They made the point yesterday that, as soon as it went to personal advice, they charged the client that accesses it.
Ms Vamos : Some funds do.
CHAIRMAN: We cleared that up yesterday. That was for full advice.
Ms Vamos : That was for full advice. Some funds—
CHAIRMAN: We cleared up yesterday. You cannot revisit it.
Senator CORMANN: Before Mr Ripoll interjected, did you say that you are always going to have circumstances where people will have to pay for things that they do not get?
Ms Vamos : No—not 'get'. They will always have access to it. It is about whether they take it up. Funds provide websites, access to your account, 24 hours—
Senator CORMANN: That is exactly what we are trying to address with FOFA. When the government says that the reason for opt in and everything else is to make sure that people do not end up, because they are not proactive enough in making decisions, paying for things that they have access to but do not access because of a lack of being proactive. What is the difference? There seems to be a complete inconsistency.
Ms Vamos : Where you have a compulsory system and where you have the average member and the fund, the only assets are usually the money in that fund, and there is a moral and a social obligation to ensure that, if they want advice about their interest in that fund, they can get access to it.
Senator CORMANN: So they should be forced to pay for intrafund advice irrespective of whether or not they access it, but they should not be in a position where they can have an ongoing financial advice relationship with an adviser outside the fund, even if there is a fee attached to it?
Ms Vamos : They can do both.
Senator CORMANN: They cannot because, one, they have to re-sign contracts every two years and there are all sorts of significant additional red tape requirements that the government wants to implement. With the other, the super fund can just continue to collect the money, possibly without the member of the fund even knowing that he or she could have access to that intrafund advice. I will move on. This is obviously a significant reform. The Financial Services Council yesterday said that the cost of implementation would be $700 million up-front, $375 million per annum ongoing—that is a significant cost. There are significant implications for big industry and significant implications for consumers, yet the government did not conduct a full regulatory impact assessment, which is part of their own best practice arrangements. Do you agree that the parliament should insist that the government does conduct a full regulatory impact assessment before proceeding with this legislation?
Ms Vamos : We certainly believe it is best practice. In terms of this particular legislation, we would not advocate going backwards. We believe that the public policy outcomes that are trying to be delivered are clear. There needs to be time to adjust; there needs to be time to implement. It is such a significant consumer reform that it is important that is proceeded with.
Senator CORMANN: So here we have a change—a $700 million cost of implementation upfront, $375 million per annum. It will cost thousands of jobs, according to the government's own figures, and it will push up the cost of advice and make us the world champions in red tape. Even yesterday, Choice, the consumer representatives, told us that they are not aware of any other example anywhere in the world where financial advisers would be subject to the sorts of requirements that are put forward in this legislation. If we do not have to go by way of good public policy process through a full regulatory impact assessment in these sorts of circumstances, when would we?
Ms Vamos : Regulatory impact assessments are important processes—there is no doubt about it. In terms of this legislation, though, the cost is significant in terms of implementation—there is no doubt about it. The cost to consumers of it not proceeding is significant as well.
Senator BOYCE: So you are saying that, if a regulatory impact statement was done, it may not proceed?
Ms Vamos : No, I am not saying that at all; I am saying that, whilst I agree that you should always follow regulatory impact statements, we would not advocate in this instance that the process be delayed because of this.
Senator CORMANN: But, Ms Vamos, you talk about their consumer interest. The consumer interest is obviously made up of a range of components; the consumer interest is also to get readily affordable access to high-quality advice.
Ms Vamos : Correct.
Senator CORMANN: And the consumer interest is to make sure that consumers have a capacity to deal with professional, transparent advisers operating at a high standard—and, of course, there are consumer protection elements there. But it is a matter of keeping the balance right, and our proposition here is that through things like opt-in and through the retrospective annual fee disclosure requirement on top of the fee disclosure that is already happening, and because of the way that some of the flaws in this legislation are playing up, the consumer will have less access to affordable, high quality advice as a result, that advice will unnecessarily become more expensive, that an important industry will be negatively impacted and that thousands of jobs will be lost. I do not agree with you, with all due respect, that we need to press ahead no matter what. We need to press ahead with our eyes wide open having conducted a proper cost-benefit analysis—that would be my view. I will leave it there.
Senator THISTLETHWAITE: In respect of the annual disclosure statement, some of the industry representatives who appeared yesterday made the claim that it will push up costs, in particular because it will be complicated for some of their advisers who are dealing with a lot of different providers of products and different platforms. It will be too complicated for them to collate all that information to provide that to the client. Is that a view that is shared by your organisation in respect of the work that the advisers do in some of the funds?
Ms Vamos : That issue has not been raised by our members as an issue at all.
Senator THISTLETHWAITE: In respect of Senator Cormann asking a number of questions about the group benefits that industry super fund members enjoy, it is fair to say, isn't it, that when a person joins the fund they are provided with a product disclosure statement which outlines the fact that some services are provided on a group basis?
Ms Vamos : Correct.
Senator THISTLETHWAITE: So they are aware, when they go into the fund, that that is the way that the fund operates.
Ms Vamos : Correct.
Senator THISTLETHWAITE: Since there has been the My Choice Super legislation, it is it true that members have been increasing in terms of industry super funds—that the number of people joining industry super funds has been increasing?
Ms Vamos : There certainly has been an increase in the size of that sector.
Mr FLETCHER: I just wanted to follow up on your answers to Senator Cormann's questions about group policies. I think I heard you say that in your view the test should essentially be whether individual advice has been provided. Is that right?
Ms Vamos : Yes.
Mr FLETCHER: The logic of that position is that where advice has been provided essentially to an individual client then it would not be appropriate to ban the payment of commission to an advisor.
Ms Vamos : The issue that has been raised by our members is a structural issue of some group insurance. Where there is an individual relationship with the advisor it is a holistic relationship. It is, effectively, an individual policy, not associated with an employer group policy. So there are no cohorts, as well.
Mr FLETCHER: In that circumstance you agree that it would still be appropriate for a commission to be payable?
Ms Vamos : Correct.
Mr FLETCHER: Would you agree that the definition in section 963B does not presently give effect to the test you have just described. As I read that, it essentially says that the test is that it is a group policy based upon who it is issued to. So if it is issued to a trustee it is a group policy, and that is all the legislation looks at. Therefore it is right, is it not, that you could have what the legislation calls a group policy, but individual advice is being provided?
Ms Vamos : Exactly.
Mr FLETCHER: So if that is right that is an amendment to the legislation that needs to be made in your view?
Ms Vamos : Yes, that is the issue. Because of the nature of trusts—
Senator CORMANN: You were nodding. Hansard does not pick up a nod. So, 'Yes.'
Ms Vamos : Because of the nature of a superannuation trust, the owner of a policy can only ever be the trustee. The owner cannot be a member of the fund. That is why you have that discrepancy with individual covers.
Mr FLETCHER: I just want to make sure I understand. It is the view of ASFA that the provision of the bill dealing with group policies needs to be amended.
Ms Vamos : We believe so if that is the outcome.
CHAIRMAN: There are no further questions. Thank you very much for your submission and for your evidence.