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Two tweaks to DBFO bill set industry at ease on super in advice rule changes

The government addressed perceived ambiguity around advice fee deduction from member accounts by pulling out two statements from the bill that essentially duplicated rules that already exist in the sole purpose test.

The government has finally passed the first Delivering Better Financial Outcomes bill in the senate, with two significant amendments around proposed changes to s99FA providing clarity for advisers and superannuation trustees.

The bill, which houses mostly administrative changes aimed at reducing costs, originally contained amendments to s99FA of the Superannuation Industry (Supervision) Act that sought to strengthen trustee obligation parameters with respect to deducting financial advice fees from member accounts. While they didn’t change the law as such, there was consternation around the wording which some believed could be interpreted as an exhortation for funds to check every piece of advice before deducting fees – which would exacerbate, rather than alleviate, costs.

While the Senate Economics Legislation Committee approved that version of the bill, the government heeded industry voices and acknowledged the ambiguity in its final version.

  • “Since the introduction of the Bill, however, some industry participants have expressed concern that the references to a member’s interest in the fund… as proposed to be amended by the Bill, could be interpreted to place a greater burden upon trustees than the current section 99FA,” Treasury noted in the ultimate bill’s explanatory memorandum.

    “In particular, some stakeholders were concerned those paragraphs could be interpreted as requiring trustees to assess each piece of advice, rather than being able to take a risk-based compliance approach.”

    Remove the double-ups

    Treasury addressed the concerns by taking out two of the statements in the original bill that are essentially covered in other legislation.

    The first omission is language requiring advice fees relating directly to the member’s interest in the fund, while the second repeal’s a direction for the amount charged not to exceed the cost of advice. “These two requirements replicate existing requirements in the SIS Act,” Treasury explained.

    Trustees are already subject to the sole purpose test as part of the SIS Act, the memo noted. “Further, considering those broader obligations, trustees have discretion whether to pay the cost of financial product advice at the request or consent of a member.”

    The government’s concession to industry concern comes with a clear caveat, however – funds are still required to maintain a “robust, risk-based approach to comply with their obligations under section 99FA as amended and the SIS Act more broadly”.

    In other words, funds must make objective assessments as to how often and how rigorously Statements of Advice need to be monitored to ensure member’s interests are met, without being obliged to scan every document.

    Celebrating collaboration

    Representatives from the financial services industry congratulated the government on the passing of the amended bill and gave thanks for its response to lobbying efforts.

    Financial Advice Association of Australia chief executive Sarah Abood called it a “positive step”, and welcomed the confirmation that the existing practice of checking advice fees as per the sole purpose test was being retained. “This should reassure superannuation funds that their existing risk-based approach can continue, minimising additional documentation requests to advisers,” she added.

    The Financial Services Council applauded the “greater legal certainty” being given to trustees when deducting advice fees on behalf of members, while noting that the first bill is only an “initial down payment” on the more significant reforms proposed for the second and third batches of changes scheduled as part of the Delivering Better Financial Outcomes reform suite.

    Australian Retirement Trust’s executive general manager of advice, Anne Fuchs (pictured), said the bill recognised the important role financial advisers play in supporting its members.

    “We see accessible, informed, and affordable financial advice as essential to giving our members confidence in their retirement,” Fuchs said. “We believe these laws will help more Australians access high quality advice and make the most of their super.”

    Tahn Sharpe

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

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