The fear of giving members ‘financial advice’ is keeping super funds from talking directly to their members about insurance. In advance of this month’s Australian Institute of Superannuation Trustees Insurance Symposium, STEPHEN SHORE hears the industry’s case for being allowed to talk death, TPD and income protection with members, and about how they can best look after members anyway through more skilful deployment of default options.
Underinsurance is often blamed on low levels of engagement with super fund members. There is evidence, however, that member awareness is improving. Anecdotally, it seems more people are calling their fund to enquire about insurance, and employers are beginning to list insurance as an important driver of their satisfaction with a fund. But underinsurance persists, because what should be a simple discussion to have with members is made anything but by a prescriptive regulatory regime around ‘financial advice’.
According to Jeff Bresnahan, managing director at SuperRatings, estimating the level of insurance a member needs is not a complicated calculation, and should only take a couple of minutes. But any advice that takes personal details into account is considered financial advice by ASIC. Most funds themselves either do not have a licence or choose not to offer financial advice, so they are unable to tell members what an appropriate level of cover might be.
Instead, funds offer to transfer members to a financial planning service. While financial planning is seen as a key service for members, the funds offering it admit few people actually use it. Glenn Palmer, general manager insurance at AustralianSuper, says members prefer an answer on the spot. “The number of members that we refer to Industry Funds Financial Planning (AustralianSuper’s outsourced financial planning service) who actually go on to get that advice would be very, very small; a tiny percentage.”
Industry bodies IFSA and AIST agree that regulations should be relaxed to allow funds to provide limited advice. Fiona Reynolds, chief executive at AIST, says financial planners are generally not interested in people with small account balances. Nor do people need to go to see a financial planner about basic financial planning issues such as the Government’s co-contribution scheme, insurance and member fund or investment choice, she says. “Super funds should be able to give advice about products and services available in the fund,”
IFSA has suggested to the Government that funds should be able to provide limited advice without an SOA, as long as the person giving the advice is a holder of the Regulatory Guide 146 qualification (still better known as PS 146). However David Whiteley, executive manager at Industry Super Networks, says there is no need to change the definitions of personal and general advice.