follow up work by the regulators about the practices of trustees concerning oversight of advice fee deductions.
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:
Check the financial adviser’s ability to provide the advice – by checking the identity and credentials of financial advisers who provide services to fund members, including via ASIC’s Financial Adviser Register.
Receive a copy of the consent required by law – From 1 July 2021 (for advice fee arrangements entered into from that date), and from 1 July 2022 for all fee agreements, trustees can deduct advice fees from a member’s account only if they sight consent from the member. The consents need to meet the requirements set out in the ASIC’s legislative instruments for non-ongoing fee arrangements and ongoing fee arrangements.
Have some processes in place to provide assurance that services are received, payment is consistent with the sole purpose test and is appropriate – For instance, trustees may check samples of advice documents on a random or risk basis to confirm advice has been received and fees charged are payable consistently with the trustee’s ‘sole purpose test’ obligations. Trustees may also impose fee caps which can also help ensure that the advice provided is not broader than permitted under the sole purpose test or does not inappropriately erode members’ superannuation balances.
Identify systemic complaints and take action if appropriate – While it is not a trustee’s role to mediate disputes between a financial adviser and a member, if a trustee becomes aware of complaints about advice services then they may want to consider if there is a problem concerning that financial adviser (e.g. people are not receiving advice that they paid for). This may mean it is no longer appropriate for a trustee to continue to allow advice fee deductions to be paid from a member’s account to that financial adviser.
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:
consolidation of superannuation accounts;
selection of superannuation funds;
selection of superannuation investment options;
asset allocations within a fund;
taking pensions and/or lump sums (including seeking advice on how much to drawn down);
whether to salary-sacrifice into super or make deductible contributions (concessional contributions); and
whether to make non-concessional contributions.
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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