The big news for RSE licensees from the response to the QAR , which was announced last week, is that the Government will expand access to retirement income advice, with Treasury to work with industry on implementation in coming weeks.
The Government has accepted in principle recommendations 6 (Superannuation advice) and 7 (Deduction of adviser fees from superannuation) in the Quality of Advice Review (QAR) Final Report , both of which we discuss below. Further, the Government will work with industry to consider adopting, and tailoring as needed, recommendations 1 (Personal advice), 2 (General advice), 3 (Relevant providers), 4 (Good Advice Duty), 5 (Statutory Best Interests Duty), 12.1 (DDO Distribution Requirements) and 12.2 (DDO Reporting Requirements).
These announcements, together with the replacement of Statements of Advice, are an excellent opportunity. To make the most of it, we encourage an RSE licensee to develop a better understanding of what its future advice offering should look like, having regard to its obligations and the outcomes it seeks for beneficiaries.
Recommendation 6 - Superannuation advice
Recommendation 6 was:
Superannuation fund trustees should be able to provide personal advice to their members about their interests in the fund, including when they are transitioning to retirement. In doing so, trustees will be required to take into account the member’s personal circumstances, including their family situation and social security entitlements if that is relevant to the advice.
Superannuation fund trustees should have the power to decide how to charge members for personal advice they provide to members and the restrictions on collective charging of fees should be removed.
In particular, the QAR Final Report recommended amending the SIS Act to:
expressly provide trustees with permission to apply fund resources for the purpose of providing personal advice to members about their superannuation; and
remove section 99F, which prohibits a trustee from passing the cost of providing personal advice to a member on to any other member if any of the prescribed circumstances apply.
The reason for that recommendation was that it should be up to a trustee to determine how expenses incurred in providing advice to members are recovered and shared between members and that, in doing so, the trustee will be subject to its covenants and regulation 5.02 of the SIS Regulations, which requires it to distribute costs in a fair and reasonable manner.
A trustee will also need to consider the advantages and disadvantages of different ways of providing financial product advice, including whether it is in the best financial interests of beneficiaries for advice to be provided by the trustee itself, a related entity or a third party. To provide personal advice, a trustee might need to apply to vary its Australian Financial Services (AFS) licence.
Recommendation 7 - Deduction of adviser fees from superannuation
Recommendation 7 was:
Superannuation trustees should be able to pay a fee from a member’s superannuation account to an adviser for personal advice provided to the member about the member’s interest in the fund on the direction of the member.
The QAR Final Report recommended repealing section 99FA of the SIS Act and replacing it with a provision giving trustees permission to pay, on the direction of a member, a fee for advice provided to the member from a financial adviser about the member’s superannuation in the fund.
The reason for the recommendation was that section 99FA, which prohibits a trustee from passing on the cost of providing financial product advice to a member unless the cost is paid under an arrangement entered into by the member, was difficult to reconcile with the view that the SIS Act prohibits a fee for advice being paid unless it is an expense incurred by the trustee in connection with the operation of the fund or a trustee fee.
In our experience, trustees have to date proceeded on the basis that they can pay a fee from a member’s superannuation account to an adviser for personal advice provided to the member about the member’s interest in the fund, so long as the member has agreed to the fee, the advice is about the member’s interest in the fund and the cost of the advice is reasonable. Consequently, we do not view the acceptance of this recommendation as having a significant effect in practice.
Next steps
The Hon Stephen Jones MP, Assistant Treasurer and Minister of Financial Services, flagged in his announcement that the following questions are outstanding.
What is the scope of advice that can be provided by a super fund?
What are the education standards needed for a super fund’s employee or representative?
How will they be held to an appropriate duty?
The Assistant Treasurer indicated that Treasury will work with industry in the coming weeks to finalise the details for how the recommendations relating to superannuation can be effectively implemented. Answering the above questions and finalising those details will have an important impact on the role of super funds in giving advice.
To maximise the effectiveness of the work with Treasury, an RSE licensee needs to first consider what its future advice offering should look like, having regard to:
complying with the retirement income covenants, the sole purpose test, the best financial interests covenant, the covenant to promote the financial interests of beneficiaries, the covenants to act fairly and the requirement to distribute costs in a fair and reasonable manner; and
meeting the strategic objectives that have been approved for the RSE licensee under SPS 515 to support achieving the outcomes the RSE licensee seeks for beneficiaries.
G+T has the knowledge and expertise to advise regarding the application of an RSE licensee’s legal obligations and to apply to vary an AFS licence. If interested, please contact Luke Barrett.