Five things to know about the approach of regulated superannuation trustees to advice fees
04 April 2022
04 April 2022
Under requirements introduced on 1 July 2021 trustees of APRA-regulated superannuation funds must receive a copy of a member’s consent to any advice fee deductions from their account.
In June 2021, ASIC and APRA wrote to the superannuation industry to explain the consent reforms and other relevant obligations, highlighting that:
Here are the five things that financial advisers need to know about the approach of trustees in this area:
ASIC and APRA issued the letter to drive better and more consistent practices across the superannuation industry in light of:
One of the issues highlighted in the Royal Commission was that superannuation trustees did not always appropriately consider what was occurring before paying out money from member accounts for advice fees (e.g. continuing to pay out after a member had died.) This had consequences for their members’ superannuation balances.
To comply with the new member consent rules and broader trustee licensing requirements, ASIC and APRA expect trustees to adopt the following practices:
The ASIC-APRA letter makes it clear that trustees do not need to check every piece of advice. At the same time, it is inappropriate for a trustee to never turn its mind to whether deductions from member accounts for advice fees are properly made. But to be clear, robust assurance processes about payments of advice fees are different from second guessing the advice provided.
Member consents are important and may generally be relied upon by trustees, but on their own they are insufficient evidence for trustees in all circumstances. They do not confirm for instance that services have been provided.
Our view is that carrying out sample checks of advice documents (such as statements of advice, records of advice, fee disclosure statements, or other advice documents or excerpts of such documents) will help trustees be confident in their payments by more definitively determining that services have been provided and that fee deductions comply with the sole purpose test. The ASIC-APRA letter suggests that trustees undertake such proactive checks on a random or risk basis. A risk- based check might be warranted if, for instance, there are complaints from members that a particular financial adviser is not providing advice as sought.
We are not expecting trustees to undertake detailed or extensive reviews of all advice documents. Trustees may request a sample of advice documents from financial advisers in order to conduct risk-based and randomised sample checks. This process should not be onerous on the financial advisers.
Trustees are likely to provide direction to financial advisers about what documents or evidence they need to sight to satisfy themselves that the advice has been provided to the member and that the advice fee deductions are in compliance with the sole purpose test. There is scope for a range of different documents, or excerpts of documents, to be helpful in providing the evidence sought by the trustee. It does not necessarily need to be the statement of advice in all cases.
In particular, we do not expect trustees to question whether the advice provided is suitable for the member, nor do we expect trustees to second guess individual pieces of advice for quality, value or appropriateness.
We recognise that financial advisers are concerned about their clients’ privacy and confidentiality. Advisers have the option to redact personal information of their clients before submitting advice documents to the trustee. Alternatively, advisers can seek their client’s consent to release this information to the trustee. Trustees receiving the information will need to be mindful of the Australian Privacy Principles, which generally prohibit the use of personal information for a purpose other than that for which it was collected.
The sole purpose test applies to all regulated superannuation funds, and requires superannuation funds to be maintained ‘solely’ for the core purposes of providing benefits to members on retirement and death, and certain ancillary purposes, such as disability benefits.
This means any advice fee deductions from members’ superannuation accounts can only be used to cover the cost of financial advice about superannuation investments, not other investments. While a fund member may receive advice on a broad range of topics including superannuation, only a proportion of the advice fee (relevant to superannuation advice) should be deducted from the member’s superannuation account. For example, fees for financial advice provided on the following topics can be paid for from a member’s account:
In contrast, broad advice going beyond these topics on how to best provide for retirement or broad wealth accumulation advice should not be paid for through a member’s superannuation account.
Five things to know about the approach of regulated superannuation trustees to advice fees04 April 2022 Under requirements introduced on 1 July 2021 trustees of APRA-regulated superannuation funds must receive a copy of a member’s consent to any advice fee deductions from their account. In June 2021, ASIC and APRA wrote to the superannuation industry to explain the consent reforms and other relevant obligations, highlighting that:
Here are the five things that financial advisers need to know about the approach of trustees in this area: 1. Why did ASIC and APRA issue the letter?ASIC and APRA issued the letter to drive better and more consistent practices across the superannuation industry in light of:
One of the issues highlighted in the Royal Commission was that superannuation trustees did not always appropriately consider what was occurring before paying out money from member accounts for advice fees (e.g. continuing to pay out after a member had died.) This had consequences for their members’ superannuation balances. 2. What did the letter say trustees should do and why?To comply with the new member consent rules and broader trustee licensing requirements, ASIC and APRA expect trustees to adopt the following practices:
The ASIC-APRA letter makes it clear that trustees do not need to check every piece of advice. At the same time, it is inappropriate for a trustee to never turn its mind to whether deductions from member accounts for advice fees are properly made. But to be clear, robust assurance processes about payments of advice fees are different from second guessing the advice provided. 3. Why do trustees sometimes need to do more than check member consent before allowing fees to be deducted?Member consents are important and may generally be relied upon by trustees, but on their own they are insufficient evidence for trustees in all circumstances. They do not confirm for instance that services have been provided. Our view is that carrying out sample checks of advice documents (such as statements of advice, records of advice, fee disclosure statements, or other advice documents or excerpts of such documents) will help trustees be confident in their payments by more definitively determining that services have been provided and that fee deductions comply with the sole purpose test. The ASIC-APRA letter suggests that trustees undertake such proactive checks on a random or risk basis. A risk- based check might be warranted if, for instance, there are complaints from members that a particular financial adviser is not providing advice as sought. 4. Are trustees going to request lots of statements of advice?We are not expecting trustees to undertake detailed or extensive reviews of all advice documents. Trustees may request a sample of advice documents from financial advisers in order to conduct risk-based and randomised sample checks. This process should not be onerous on the financial advisers. Trustees are likely to provide direction to financial advisers about what documents or evidence they need to sight to satisfy themselves that the advice has been provided to the member and that the advice fee deductions are in compliance with the sole purpose test. There is scope for a range of different documents, or excerpts of documents, to be helpful in providing the evidence sought by the trustee. It does not necessarily need to be the statement of advice in all cases. In particular, we do not expect trustees to question whether the advice provided is suitable for the member, nor do we expect trustees to second guess individual pieces of advice for quality, value or appropriateness. We recognise that financial advisers are concerned about their clients’ privacy and confidentiality. Advisers have the option to redact personal information of their clients before submitting advice documents to the trustee. Alternatively, advisers can seek their client’s consent to release this information to the trustee. Trustees receiving the information will need to be mindful of the Australian Privacy Principles, which generally prohibit the use of personal information for a purpose other than that for which it was collected. 5. What is the sole purpose test?The sole purpose test applies to all regulated superannuation funds, and requires superannuation funds to be maintained ‘solely’ for the core purposes of providing benefits to members on retirement and death, and certain ancillary purposes, such as disability benefits. This means any advice fee deductions from members’ superannuation accounts can only be used to cover the cost of financial advice about superannuation investments, not other investments. While a fund member may receive advice on a broad range of topics including superannuation, only a proportion of the advice fee (relevant to superannuation advice) should be deducted from the member’s superannuation account. For example, fees for financial advice provided on the following topics can be paid for from a member’s account:
In contrast, broad advice going beyond these topics on how to best provide for retirement or broad wealth accumulation advice should not be paid for through a member’s superannuation account. |
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