Is it just our impression or is there is much (ongoing) ado about superannuation? There is the independent report on the retirement income system that Treasury won’t release. We have had the usual nastiness from the political classes on raising SG to 12%. And Vanguard’s decision last week to withdraw from super investment mandates to establish their own low-cost superannuation fund has raised scrutiny again on fees and accusations of funds clipping the ticket.
Leading into last night’s federal budget, there was speculation about a third tranche of the early access to super program, although those rumours proved to be unfounded. The second tranche runs to the end of 2020, and the regulatory relief for providing advice on early access has also been extended. For all its faults, this program has lit a fuse under the Australian population and arguably created the highest level of member engagement ever seen, even if many of those members have withdrawn the lion share of their balances. Looking on the bright side, this engagement is a good thing, right? But how do we translate that into benefits for consumers and for advisers?
In last week’s article, we argued that super funds can become the engine room for growth in adviser numbers, particularly in terms of sourcing demand from their membership bases for limited advice in super. However, we expect the super funds to drive this through partnerships with third-party advice firms, rather than by hiring internally.
It got us thinking: will we start to see more advice firms specialising in superannuation advice, for example, so that they stand out as more suitable partners for the major super funds? And while accounting firms are generally perceived as the enemy of APRA funds and the champion of SMSFs, do they have an increasing role to play here?
Advice Specialisation and Limited Licences
The heavy regulatory burden that the industry is experiencing seems to be driving an increased level of focus by advice firms. The more proactive ones have recognised there are competitive advantages to narrowing their business span: concentrating on areas of advice where they have expertise and pricing power, only targeting clients that fit their model, and engineering their operations to maximise profitability.
The most extreme examples of this are firms with limited licenses, as defined by ASIC, largely the domain of accountants. The actual legislation defines “limited” as dealing in financial product advice around SMSF and existing superannuation holdings. It goes further to include “class of product advice” about super, securities, simple managed investment schemes, general insurance, life insurance, and basic deposit products. However, these firms can only provide general direction on these class of product areas and cannot make recommendations on specific products. At first blush, not a great referral partner for a super fund!
From our analysis of the ASIC Financial Advice Register, we have identified 830 advisers that are exclusively restricted to these areas, and this volume has grown by 2% over the past two years at the same time the total adviser population has fallen 24%. This outcome may surprise many people, particularly given the extensive commentary about FASEA’s general education obligations disadvantaging those advisers seeking to specialise, particularly accountants and risk advisers, and disproportionately forcing them as a group out of the industry. While that may be happening for risk advisers (we estimate their exit rate is twice the industry average) it doesn’t appear to be the case for accountants.
*Referencing ASIC's Financial Adviser Register (30th September 2020), only considering advisers with CLASSES of Products
Even more interestingly, today there are 482 licensees where 100% of their advisers are operating under these limitations. That represents 22% of the entire market of licensee firms, with more than 90% of those 482 firms containing three or fewer advisers.
*Referencing ASIC's Financial Adviser Register (30th September 2020), only considering advisers with CLASSES of Products
Will this population of accounting firms offering limited advice grow further? New entrants may be attracted by ASIC’s continued relaxation of rules for the provision of early access to super for unlicensed accounting firms and tax agents. While that’s possible, the real growth story is how limited license accounting firms and full license advice firms can work more closely together to service their existing clients and grow the overall customer pool, particularly for both unadvised super fund members and SMSF trustees.
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Comments1
"The whole benefit of intra fund advice for super funds is that it can be done over the phone by someone with no qualifications. They won't be employing qualified financial planners who meet the proposed education standards, they will be employing the ex PT's who won't complete the qualifications instead. Accountants also have no reason to use the limited license as ASIC aren't imposing restrictions on those that do it unlicensed so this also won't be an area of growth in my view."
Scott 16:33 on 07 Oct 20