Superannuation funds have thrown their support behind the reforms of the Quality of Advice Review but want a “clear statement” that they will not be required to check all member statements of advice (SOAs).
The first Delivering Better Financial Outcomes bill, which comes off the back of the Quality of Advice Review (QAR), has caused concern over revised requirements for superannuation fund trustees processing financial advice fees.
Namely, the legislation sets out a number of requirements that need to be satisfied before a trustee can charge the cost of advice against the member’s interest in the fund.
In its initial response to the proposed legislation, the Financial Advice Association Australia (FAAA) highlighted this measure as a main area of concern.
In submissions to the Senate economic committee’s inquiry into the bill, super funds have also highlighted concerns, while backing the overall amendments to section 99FA of the Superannuation Industry (Supervision) Act (SIS Act).
“We acknowledge that they clarify existing legal obligations and in doing so, help ensure that payments from members’ accounts for advice are consistent with the sole purpose test and reflect the services provided to members,” AustralianSuper said in its submission.
The Association of Superannuation Funds of Australia (ASFA) said that it “strongly supports” the goal of greater availability of financial advice for superannuation members.
“ASFA member organisations are interested to ensure there are measures in place that allow for increased access to advice while providing necessary consumer protections,” it said.
“ASFA supports the aim of the bill in legislating recommendation 7 of the Quality of Advice Review, to clarify in law the legal basis in the Superannuation Industry (Supervision) Act 1993 (SIS) for superannuation trustees to charge members for financial advice from their superannuation account.
“In doing so, ASFA understands the intention of the bill is to codify existing obligations with respect to trustee oversight of advice fee deductions from members’ superannuation accounts.”
The Super Members Council (SMC) went as far as to push for an even quicker implementation of the reforms.
“The Committee recommend the Senate fast-tracks passage of this legislation so millions of Australians can benefit from these changes swiftly,” it said in its submission. It also recommended that the Senate “support the original proposed commencement date – to start three months after royal assent” instead of 12 months.
Avoiding costly new processes
However, despite this broad support, the super funds were also united in calling for the process of checking SOAs to remain unchanged, with ASFA and AustralianSuper both specifically referring to a joint ASIC and APRA letter to trustees on the matter from 2021.
In the letter, Further guidance on oversight of advice fees charged to members’ superannuation accounts, the regulators said that there is “[no] need to obtain a copy of every SOA produced”.
“However, the capacity to access SOAs and related documents provided by financial advisers, on request, should generally form part of trustees’ assurance processes,” it said.
“Reviewing SOAs and related advice documents would enable trustees to check that the expected financial advice service has been provided, and that it complies with the sole purpose test. Trustees are not expected to review individual pieces of advice for quality, value or appropriateness.”
Speaking at an FAAA roadshow in Sydney last week, ASIC commissioner Alan Kirkland said that the corporate regulator still holds this view.
“We’ve been trying to provide some early guidance in relation to the issue … around the obligation of superannuation trustees, to clarify that under those proposed reforms, as under the current law, it’s not our view that super trustees are required to check every statement of advice and we’ll continue to do our best to make that clear,” Kirkland said.
AustralianSuper requested clarity within the legislation that this will still be the case once it is passed.
“A clear statement in the Explanatory Memorandum, or from the regulators, that similar expectations will continue to apply to the amended law, would provide trustees with comfort that provided they are proactively and regularly sampling advice documents, they do not need to build new governance and assurance processes, the cost of which would be passed onto members,” it said.
ASFA agreed, arguing in favour of a “measured, risk-based approach by trustees” to protect consumers while supporting access to cost-effective advice.
“With this in mind, superannuation trustees are concerned to ensure they have certainty in continuing to discharge their oversight obligations around the deduction of advice fees from members’ accounts, and that no unintended consequences result from the introduction of these provisions,” ASFA said in its submission.
SMC also called for the government to include an explanation in the explanatory memorandum and parliamentary processes that the “intent of the legislation is for trustees to be able to continue to take a risk-based approach”.
‘Desire to remove appropriate oversight’
On the flip side, however, Super Consumers and CHOICE took a more combative view, pushing against the deduction of advice fees from superannuation accounts entirely.
“Super Consumers Australia has previously outlined that people may be more likely to value advice if they have to actively pay for it from their own pocket, rather than have fees deducted from their super account,” the consumer groups said in a joint submission.
“There was compelling evidence in the financial services royal commission and the ‘fees for no service’ actions brought by ASIC that there is a high risk people will be ripped off if fees can be charged from super with limited oversight.”
They also made the case that concerns over the bill’s drafting are unwarranted and a result of fearmongering from advisers.
“The financial advice industry has attempted to argue that the reforms in the Bill will increase red tape for advisers and require trustees to check every piece of advice individually,” the consumer groups said in a joint submission.
“There is no basis for this argument, which appears motivated by a desire to remove appropriate oversight of advice deductions from super and reduce consumer protections.”
The groups said that, given ASIC and APRA have already provided clear regulatory guidance that trustees do not need to obtain a copy of every SOA, there is nothing for either trustees or advisers to be worried about.
“Trustees and advisers should already have the oversight processes in place that law and the regulators expect of them. If they do, it is difficult to see why the new provisions in the Bill will require major changes, either to industry practices or to the regulators’ guidance,” the submission said.
“To the extent that there is uncertainty in how trustees should exercise their new obligations, expectations about how they should exercise oversight in practice could be set out in the Explanatory Memorandum and supplemented by further guidance from the regulators if necessary.”
