02 – Fees from super funds: it’s in the client’s best interests
Increasingly, clients can claim some or all of the fee for their financial advice from their superannuation fund. Unsurprisingly, the advice to which the fee relates must involve superannuation – and typically the specific fund from which the fee is being paid. Here is how AustralianSuper describes it (please note, this is not a recommendation of AustralianSuper):
There is one obvious benefit of this kind of arrangement: the client can pay a fee for advice without using current cash flow to do so. This should make it more likely that the client will seek financial advice. Presuming that the advice puts the client in a better position, drawing the fee from the super fund is therefore in the client’s best interests: they are better off for having incurred the expense.
Where the fees are being paid from super, it is a good idea to highlight the fact that this will reduce the size of the benefits remaining within super. We say this because ASIC has been strongly on record as saying that advisers should point out that using super benefits to pay for things like life insurances will reduce the amount remaining within super.
(As an aside, this seems to be based on the common misconception that using superannuation benefits to purchase insurances will leave less total wealth available upon retirement. This is not actually the case, but the misconception is widespread. Consider the following statement listed, which is listed as a ‘drawback’ of using super to purchase insurances, by ASIC on their Moneysmart website:
- Reduces super balance– The cost of insurance premiums comes out of your super balance, so although it could be cheaper to take out insurance through super, there will be less money for your retirement.
This is, of course, not true. If the premium becomes cheaper, then the client will have more available for retirement. It will only be if the client chooses to spend an amount greater than they save through using their super benefits that there will be less for their retirement. But this is down to their spending, not the way they paid for their premiums. Of course, if a client spends more than they save, they will be left with less in retirement. We examine this issue in more detail here.)
ASIC have even imposed an enforceable undertaking on an adviser who, ASIC says, “…. failed in some cases to consider the competing priorities of adequate insurance versus affordability, including the longer term impact of placing insurances within superannuation…”
A similar criticism is likely to be made of advisers who do not point out that using superannuation benefits to fund advice will reduce the remaining benefits. So, while we encourage clients to use superannuation benefits to pay for advice that they might not otherwise be able to access, make sure you also explain how using superannuation benefits in this way is in the client’s best interests – even though it will reduce the amount of benefits held in superannuation.