IN THIS EDITION - December 2018
A word from Cath
With the end of the year fast approaching, in this edition we take a look at the new professional standards for financial planners, and reforms which are being phased in from 1 January 2019. We discuss the implications for funds providing financial advice and what IFS is doing to ensure all planners are FASEA-ready.
A new report on unpaid super was released by Industry Super Australia (ISA) recently which shows the problem is getting worse with 2.98 million Australians being short-changed $5.9 billion in super entitlements in 2015-16 - an increase of 220,000 employees and $300 million compared to two years earlier.
We thought it timely in this edition to tell you more about the work of the IFS Unpaid Super team and remind funds of the important work we can do together to address the problem.
We’re also pleased to tell you about a donation we presented to Fitted for Work last month. For almost 25 years IFS has refused to accept commissions from financial product providers. Where practical, commissions paid are rebated to clients. However, each year there are some commissions that we are unable to rebate, and these are donated to charity.
Fitted for Work is an organisation dedicated to assisting women experiencing disadvantage to get back into paid employment and is therefore strongly aligned with IFS’s concern about the super gender gap. We hope you’ll help spread the word about this worthy cause that helps women strive for a secure retirement.
That’s all for this edition. Please get in touch if you’d like to discuss any of the issues featured here.
Wishing you all a happy and safe festive season.
IFS Chief Executive
Are your advisers FASEA ready?
As the end of this year quickly approaches, we’re reminded that the start date for many of the new professional standards for financial advisers, is not far away.
This package of reform imposes new educational requirements on planners, and introduces a regime for monitoring adherence to a code of ethics.
While the industry has been absorbed with the intricacies of the new educational standards, less attention has been paid to the ethical standards framework, which will have more far-reaching impact, and has the potential to reshape advice ahead of the outcomes of the Royal Commission.
What’s in store?
The new regime will require every adviser to belong to an ASIC approved Code Monitoring Body, charged with pro-actively monitoring advisers as well as reactively addressing allegations of poor conduct.
The Code of Ethics requires, amongst other things, advisers to not only comply with the law, but to comply with the spirit of the law. It also requires advisers to act in their client’s best interests, without the protection of the safe harbour steps found in the Corporations Act. Failure to adhere to the Code will be reported to ASIC.
This new regime reinforces the advisers’ obligation to give primacy to their clients’ interests over the interests of their employer or licencee.
What will it mean?
The introduction of ethical standards accompanied by individual accountability should not challenge advisers who offer advice as a service.
But for those who continue to see advice as distribution, the reforms represent a significant change – change that is needed to address outcomes of the Royal Commission and ensure clients’ interests are protected.
And for all advisers and licensees, the reforms bring another layer of regulation and duplication in an already complex regulatory environment.
Here at IFS, we’ve always put members’ best interests first and we’ve been raising our standards to meet community expectations for some time.
Four years ago we introduced our own Advice Assurance Program to include comprehensive monitoring, coaching and education to ensure advice processes are robust and compliant.
Since the Royal Commission and in preparation for the introduction of tougher standards, we’ve further ramped up adviser education to get all advisers FASEA-ready with:
- An annual exam and compulsory CPD already in place
- An education audit of all advisers to identify additional studies required and eligible exemptions
- Webinars delivered to fund executives with information to explain the changes and the consequences for their advisers of failure to meet responsibilities under the fit and proper test.
Contact Chris Joiner at firstname.lastname@example.org if you’d like to know more about IFS financial planning solutions.
Partnering with funds and the ATO to decrease unpaid super
IFS Unpaid Super employs a number of strategies to improve the collection of unpaid super.
Working closely with the ATO
Following the attendance of James O’Halloran, Deputy Commissioner for Taxation, at the second meeting of the Unpaid Super Working Group, IFS Unpaid Super has been discussing ways of collaborating more closely with the ATO on behalf of client funds. This includes joining forces to pilot a program for those employers who are persistently late payers. Work on this is well underway.
How we manage employer relationships
“I’d like to speak to your Manager.” When Roevi, a Credit Officer in IFS’s Unpaid Super division heard these words her heart sank. Roevi’s role is to contact employers who have been identified as failing to pay SG contributions to their staff. In this case, the employer’s SG payments had fallen two years behind. Their initial conversation had started with uneasiness and confusion on the part of the small business owner.
Roevi listened patiently to the employer and was able to identify that the key reasons for the payments slipping included: a) the employer’s ill-health; b) a lack of understanding of the correct processes; and c) administration errors made by staff at the business. A plan to resolve the issues was discussed with the employer.
The business owner wanted to speak to Roevi’s Manager simply to pass on her thanks. She said Roevi had been extremely helpful - not only in fixing processes but also for listening to the personal reasons for their predicament. She said that after a very difficult time, they were relieved to be getting the business back on track.
Protecting relationships between funds and employers is always central to IFS Unpaid Super’s approach in helping pursue members’ super entitlements.
Building deeper understanding with client funds
We take this same approach working in collaboration with our client funds.
Following an informal Q & A session by Jo Prossimo, our Legal & Insolvency Manager, Mark Butterworth, Head of Administration Operations & Contract Performance, at Cbus said:
"It’s a pleasure to work with Jo and the team at IFS. She’s always supportive of Cbus. She provided us with a detailed understanding of the legal process today - a very informative session and another example of her willingness to work with us to improve overall processes for the benefit of our members."
At IFS we never take commissions, we donate them
It’s more than five years since conflicted remuneration for financial advisers was banned, preventing advisers from receiving payment or commission to distribute financial products from the product issuer.
Unfortunately, the ban did not apply to all forms of financial product, and advisers continue to receive commissions on insurance products, as well as receiving commissions on “grandfathered” arrangements.
In light of the findings of the Royal Commission into misconduct in banking and financial services, many commentators are predicting further regulation to close these loopholes, and some players have announced they will stop taking commissions.
Nonetheless, it appears the payment of commissions is hard-wired into the financial services sector. Recent data suggests a significant number of financial advisers continue to rely on commissions for a large part of their income, highlighting just how entrenched the sales culture remains within parts of the financial advice industry. Around a quarter of advice practices derive 25% or more of their revenue from grandfathered commissions, with 10% deriving over 50% of their income from them. (Source: Professional Planner October 2018)
Industry funds have always seen advice as a service. We spearheaded the campaign to abolish commissions and have never paid commissions to financial advisers, or relied on commissions to support our business.
In some instances, it is not possible to stop commissions being paid to IFS by providers of financial products so where commissions can’t be rebated, these are donated to charity.
On Wednesday November 14, IFS presented a cheque for $50,000 to Fitted for Work, an organisation dedicated to assisting women experiencing disadvantage to get back into paid employment.
Like many of our peers in the NFP super sector, IFS cares deeply about the super gender gap that results in women retiring with 47% less superannuation than men and 30% retiring with no super at all. With factors such as lower pay, running a single-parent household, and time out of the workforce to raise children making it challenging for women, Fitted for Work aligns strongly with IFS’s values.
Fitted for Work assists in building confidence and skills and provides free services including training, mentoring, coaching and importantly, the donation of high-quality second-hand clothing and accessories to assist women secure a job.
Staff and business partners of IFS and Fitted for Work, attended the presentation and were invited to get involved by bringing along items to donate such as quality work-appropriate clothing, shoes, handbags and other accessories which are always in demand.
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