New ASIC Measures - Tremendous Opportunity or Poison Pill?

This latest ASIC announcement is both a tremendous opportunity and potential poison pill for the industry. In one stroke of the pen (or several, the COVID-19 Relief 2020/355 Legislative Instrument and Explanatory Statement documents run to 9 pages and 8 pages respectively), ASIC has provided consumers the opportunity to get financial advice on early withdrawal of their super fund either for free (from their super fund) or for a maximum of $300 (from a financial adviser or tax agent / accountant). At first glance, consumers captured under the hardship provisions, who may never have thought about it before, benefit by getting access to professional help to determine the right move for their personal circumstances, rather than relying on their own devices and potentially ending up in a worse financial situation. The bigger question though is; does the industry have the capacity and willingness to serve this demand?

Demand for more complex intra-fund advice to pressure super fund processes
In the last few weeks, we have seen spikes in demand for financial advice and financial counselling both empirically in terms of traffic to websites like Adviser Ratings and anecdotally from reports by super funds and financial advisers. Consumers are clearly reacting to collapsed investment markets, lower super balances, lost income or lost jobs, confusion about eligibility for various new government benefits, and generally high anxiety about their financial well-being. The government's $20,000 early super release scheme has also acted as a lightning rod for consumers to storm super funds seeking relief, with at last count over 800,000 expressions of interest already submitted before the official ATO application form becomes available on April 20.

Does the industry have the capacity and willingness to respond?
We have already seen the super fund help desks and intra-fund advice teams overwhelmed by member demand from this economic crisis, most intensely since the early release scheme was announced. Under this latest announcement, super funds will have dispensation (or a "no-action position") on providing more holistic intra-fund advice around early release where they may need to broaden their level of inquiry of the member to their household circumstances. This will only serve to raise member expectations. Apart from adding to the likely volume of (more complex) requests and heightened member call loads right through their triage systems, this will also require the super funds to extend their work processes and protocols including scope of fact finds and supporting documentation to ensure the service remains suitably compliant. For retail super funds with long-established ties to the advice industry, this may be less of an issue. Will it be different for industry super funds, not known for their agility, to make these adjustments quickly?

For the industry super funds to be able to accommodate demand from their members, it may accelerate growing levels of engagement and cooperation with the third party financial advice industry, particularly where advice needs extend beyond intra-fund parameters. Super funds like AustralianSuper, CBUS, and Sunsuper have well developed outsourced arrangements with panels of advisers, while other major public sector and industry funds are also starting to develop financial advice strategies after sitting passively on the sidelines until now. 

This latest initiative also raises an interesting fiduciary question for super fund trustees - to provide free advice to the member internally and amortise the cost against all fund members, or refer the member to an external adviser and have them pay $300? Aside from the challenges to the fund's investment staff to manage the outflows from early release, given the growing share of members eligible to draw on the early release scheme, the total cost of this internalised advice will represent a substantial financial impost that has not been provisioned for. 

For advisers, this raises a whole range of other questions. At a time where the industry has been "muscling up" to provide more robust, structured, and compliant advice following the many changes arising from the 2018 Royal Commission and rollout of FASEA, suddenly the rules have reversed somewhat, albeit only temporarily and clearly only for what is relatively "simple advice". With the average cost of comprehensive advice (2019 Adviser Ratings Landscape report) climbing to north of $3,000 p.a, it would not surprise if many advisers found unwelcome the prospect of a wave of new "clients" seeking personal advice for $300. Where there is willingness, is there capacity - to take a high volume of new clients through an urgent, compressed cycle? The question of capacity is also relevant when we reflect on how the industry is rapidly shrinking as advisers overwhelmed by changes to the industry are leaving at a rate of 15% p.a. Where there is capacity, is there willingness - to potentially service this demand but for a fee of $300 it will likely come at breakeven or potentially at below cost after taking account of the typical adviser, paraplanner, and overhead expenses for even this kind of simple advice. Of course, many clients may well discover the need for and subsequently request a broader scope of assistance beyond the mandated $300 service, to the benefit of the adviser.  

The $300 cap is an interesting story by itself. From many years of consumer surveys, including ASIC's own testing, this is what the general population believes personal advice costs. Of course, the reality is so different with the price gap between perception and reality only growing as the industry wrestles with rising costs of advice. After closer inspection, consumers will hopefully realise that paying $300 probably represents good value to have peace of mind for what will be a major financial decision for many, and one with great impact on their current circumstances and longer term retirement. It's possible that ASIC may have unveiled the best marketing campaign the industry has ever conceived!   

A level playing field?
The terms of this ASIC announcement may also fuel simmering antagonism from advisers towards accountants, tax agents and super funds for the "uneven playing field" that this announcement has potentially created. Accountants and tax agents are now able to deliver personal advice on the matter of early super release, without the need for an AFS license. More concerningly, they may not have the knowledge, experience, and processes to perform this work adequately, particularly those firms that have not historically operated under limited license in the SMSF space. Of course, many of these same firms may choose to stay away from this opportunity, given concerns about capacity, capability, potential impact on their professional indemnity insurance cover, and whether it makes economic sense for their business. 

What about FASEA Code of Ethics?
What's not clear to us right now is how the FASEA Code of Ethics around eliminating real or perceived conflicts of interest play out here. The language in the Instrument constantly talks about managing and communicating these situations. Does ASIC have the authority to waive the FASEA obligations? And will advisers, all bound by the Code of Ethics since January 1, 2020 but only 8,000 of them having sat the examination to date, be willing to test this relaxation in standard?

There are bright spots!
It's been said before but this time in history is a great opportunity for the advice industry to step up and rebuild trust with the community. This latest government announcement delivers a virtually unlimited supply of new customers to the advice community. It's up to them whether they choose to service them, and how they manage that. The concessions that ASIC has provided around SOA / ROAs is really encouraging and will definitely help advisers streamline their processes and provide this assistance faster. It's tempting to extrapolate this temporary relief and wonder if they could become permanent changes, especially for simple advice or scaled advice situations. Whether that has a chance of happening is only really known to ASIC. But if the industry steps up to the challenge and performs creditably under these new conditions by meeting as much demand as possible, by doing it compliantly, and by potentially finding smarter ways to serve customers with simple advice needs at lower cost, then they will surely be in a much stronger bargaining position than they are today. And they may well have consumers on their side, which is not something they could have counted on only three months ago. This may be the beginning of the very best of times for the advice industry.

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