Ash St. in Financial Standard | Technical Services Forum

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Technical Services Forum: Keep advisers informed of change

Lively discussion broke out during the first Challenger Financial Standard Technical Services Forum for 2019 in Sydney yesterday, with the consensus being financial advisers must be across which products are exempt from means testing.

Challenger head of technical services Andrew Lowe spoke of how new means testing rules applicable from July 1 would affect the assessment of pooled lifetime income streams purchased thereafter.

Consensus emerged that advisers need to be kept informed of which products attract means test exemptions, after an attendee said she was concerned some advisers who aren’t aware of the change would go on to purchase liquid lifetime regular options after the deadline.

Such a move would effectively have the entire purchase price assessed as an asset while inadvertently believing only 60% would be assessed as an asset.

When asked whether product providers should inform advisers prior to purchasing products that are more appropriate for self-funded retirees, Lowe confirmed advisers needed to be kept informed of which products have social security benefits.

“I think there’s something there to do around that. We’ve got a brand new PDS that’s coming out, we’ve got a new order of priority in terms of the quote that an adviser will go through,” Lowe said.

Discussion also centered on the optimal age to defer income, with one attendee asking Lowe what the sweet spot for deferral would be for many clients.

While it is important to note deferral periods will differ depending on the clients individual circumstances, Lowe said in many cases periods were less than five years for deferred lifetime annuities.

“And if I look to the limited number that we have actually had invest in this particular product [deferred lifetime annuities], all of them to date are deferral periods of less than 10 years, and the vast majority are less than five years,” he said.

“So they are relatively short deferral periods.”

Lowe told delegates the deferral period could however be much larger, regaling a story of one Challenger client – with the firm’s largest deferral period – who had a future retirement date in mind and was looking for payments to commence at the point when he stopped working.

“So it was tied into a particular event in those circumstances,” he noted.

“He didn’t need guaranteed income at this particular point because of the contractual income that he had out of the sale of this particular business, but this was effectively available to fund it in those circumstances.”

Later, Ash St. legal and advisory director of governance, compliance and regulatory Samantha Carroll recapped Kenneth Hayne’s final Royal Commission report, highlighting the biggest lessons for the financial advice sector.

Carroll noted Hayne’s view that fees for no service was an endemic issue.

“Hayne was very concerned about this issue and he pretty much fell shy of saying that it was essentially stealing in his opinion,” Carroll said.

“He considered it to be endemic in the whole industry.”

She said the key learnings Hayne set out as a result of the fees for no service issues were that charging for what you do not do is wrong, and licensees did nothing to prevent having more customers on their books than they could manage.

“That point was quite interesting because they were just kind of taking on, taking on, taking on, and there was no real consideration of whether – practically – they could actually service that many customers and that in itself was considered to be a little dishonest. Or a lot dishonest,” she said.