“I wish I could say this is an isolated example,” Kirkland said, explaining the regulator’s concern about a small cohort of advisers who transfer client funds into high-risk investments after being referred by cold-calling telemarketers.
The industry has little chance of fighting through the legislative backlog and getting immediate wholesale change made to the ill-designed CSLR. There are things the government can do in the interim, said the FAAA, but who’s listening?
QAR legislation stumbles on prohibitive super fund advice fee rules
The financial advice industry has been left bewildered by the tabling of a bill that leaves unaddressed poorly structured rules around advice fee collection by superannuation funds, which have carried over from the government’s initial draft legislation that formed its response to the Quality of Advice Review.
The Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 was delivered Wednesday, enshrining several of the key recommendations aimed at improving access to, and affordability of, financial advice. Key changes to conflicted remuneration rules, fee renewal and consent requirements were all included as per the draft legislation.
Recommendation 7, however – clarifying the legal basis for superannuation trustees paying a member’s financial advice fees from their superannuation account – was widely expected to be amended, as the original suggests super funds must assess every piece of financial advice that is provided before they allow advice fees to be deducted.
The list of conditions that super funds must meet before allowing a fee to be charge includes a mandate that the advice must be “wholly or partly about the members interest in the fund”, a requirement that would be virtually impossible for funds to monitor at scale. In practice, the requirement is likely to preclude super funds from allowing financial advice fees from being deducted from member accounts.
The Financial Advice Association of Australia lodged its “strong concern” on the issue in a release following the Bill’s presentation, noting that there are “no clarity” on how the specific obligations of trustees to meet the mandate would be met.
“The risk we see is that this could cause significant extra work for financial advisers who may be asked to provide additional specific documentation, such as Statements of Advice and invoices,” the FAAA added. “This will also require onerous processing by trustees.” Â
The Financial Services Council said it was “concerned” by the current drafting of the bill, which “risks missing the opportunity to remove costly regulatory duplication that currently requires both financial advisers and superannuation trustees to approve advice fee deductions from superannuation accounts”.
FSC chief executive Blake Briggs added that “despite the many positives in the Bill we are concerned that it will entrench unnecessary obligations on superannuation trustees that would be costly to maintain and act against the delivery of affordable financial advice”.
The council was one of a number of industry stakeholders to highlight the issue in its submission to the draft legislation’s consultation, suggesting that the final legislation should allow super funds to deduct fees with the advice component “verified through adviser attestation”, with a “due diligence defence” introduced for trustees.
Further submissions put forward alternative suggestions that would free up super funds to deduct advice without having to check every piece of advice, while still maintaining consumer protections, such as placing the responsibility on licensees and including fee applicability in their compliance mandate.
