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Confusion reigns as government hedges its bets on advice in super

The government's line on its proposed changes to advice in super is incongruous with the actual changes. You can't re-do the language embedded in the SIS Act while denying that anything will be different.
Opinion

The federal government seems perplexed by widespread frustration over its proposed changes to the SIS Act, but they simply reflect the industry’s desire for certainty over confusion.

The bill, housed in the Delivering Better Financial Outcomes reform package and based on the government’s response to the Quality of Advice Review, proposes replacing section 99FA of the Superannuation Industry Supervision Act with a directive for trustees to only deduct advice fees if a clear legal basis is provided. In effect, it extends the existing obligation for trustees to make sure all member expenses meet the sole purpose test.

The exhortation for trustees to more closely monitor advice provision was immediately picked up by industry as an anomalous outlier. In a bill aimed at reducing the cost of accessing advice and minimising red tape – a bill which included several other measures squarely aimed at doing just that – the changes to 99FA propose making trustees wholly responsible for ensuring that financial advice provision is worth members’ individual spend, which presents as a huge cost burden to funds and would likely upend a key advice revenue channel.

  • It’s also a duplification of several layers of compliance that already exist on the financial advice side, including Best Interests Duty and the Code of Ethics.

    In the words of Financial Advice of Australia general manager for policy Phil Anderson, it’s “an unworkable model”. Extending trustee obligation to check all financial advice relating to super means pulling apart advice documents to ascertain not only if the advice is in the members’ best interests, but exactly where it is going.

    “What this gets to is often you are providing advice that goes above and beyond the members in the fund,” Anderson said at an FAAA roadshow event in Sydney. “They’re saying the super trustee needs to know what advice you are providing and the extent to which that advice relates to your client’s interest in the fund, to make sure the fund is not paying for advice that is unrelated to their interest in the fund. How exactly do they do that?”

    Mixed messages

    The government’s position on the bill has only served to increase the frustration of funds and advisers.

    Its justification for the strengthening of the language around 99FA is that it’s protecting member interests, which is an inarguable motive in itself. When challenged on the changes, however, financial minister Stephen Jones seemed to contradict his own proposal by saying that trustees shouldn’t be the ones checking advice documents.

    “We don’t want trustees reviewing every single Statement of Advice, that’s just going to drive up costs, we know that,” Jones said at a Vanguard event hosted in Sydney. “And we don’t want trustees checking the quality of financial advice that members have received because quite frankly, that’s not their job.”  

    The minister is not the only one doing one thing yet saying another. ASIC doesn’t make law, but in May it published a report criticising funds for not protecting members from “unscrupulous operators” gouging advice fees from accounts, a report which the government has leant on to justify its proposals. At the FAAA roadshow, however, ASIC commissioner Alan Kirkland followed Jones by saying trustees shouldn’t be checking every advice document.

    “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,” Kirkland said.

    A bet each way

    The stance, then, from the government, is that industry is just reading the proposal incorrectly, and that the changes simply strengthen the wording around already existing obligations. Funds can continue checking member advice documents sporadically, rather than in every instance, before allowing fees to be deducted.

    But this is incongruous with the changes themselves. Why go to all the trouble of re-doing the SIS Act and embedding heavy-handed language that changes the approach on advice fee oversight, only to deny that anything is changing?

    Super funds and advisers could be forgiven for assuming the government is taking a bit of a bet each way on the issue. If it emerges that advice fees are unfairly deducted, it gets applauded for at least trying to strengthen the rules. If the advice channel gets further choked by cost and bureaucracy, the government can say that it didn’t actually make substantive changes.

    It’s a strategy that doesn’t benefit the industry or the people it serves. But after the Senate Economics Legislation Committee recommended passing the legislation as it is last Friday, it seems the industry is set to take on yet another awkward and ambiguous set of parameters.

    This is only the first, initial wave of legislative change that will eventually see what the government wanted to call “Qualified Advisers” providing distinctly unqualified financial advice via the superannuation channel.

    Confusion may be rife now, but it’s likely to get worse before this thing plays out.

    Tahn Sharpe

    Tahn is managing editor across The Inside Network's three publications.




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