Super fund trustees will be facing increased scrutiny and more rigid rules around how members are charged for advice services, according to a joint letter by APRA and ASIC.
The letter explains that ahead of the commencement of the Advice Fees and Independence Act in July, trustees are expected to have assembled the “information, systems and suitably qualified people” to form a “robust assurance framework,” incorporated control testing reviews within annual audits and created processes to regularly produce exception reporting “to ensure any necessary remediation activities can be completed in a timely manner.”
The new rules
What does this mean in practice? First, consent documents pertaining to non-ongoing advice fee deductions from member accounts must contain information regarding the services the member will receive. But at the same time, trustees should avoid an “over-reliance on member consent”.
“Instead,” the letter continues, “reliance on the consent should be combined with further trustee oversight practices, in particular, proactive reviews of a sample of SOAs and/or related documents to evidence the provision of services, either where misconduct is suspected or as part of a regular review.”
APRA and ASIC’s rationale behind this is that while member consent provides evidence that the member agrees to the fees being charged, a thorough review of SOAs “and other documents” will provide assurance that the expected services were actually provided to them.
This point – confidence that advice services provided through super are commensurate with the fees charged to members – is highlighted as an “area of weakness” in the letter, which also suggests the idea of incorporating random reviews of non-ongoing advice documentation, such as SOAs, FDSs and fee consent forms. These “robust oversight practices,” the letter argues, will enable trustees to ensure advice fees charged comply with the sole purpose test.
Privacy concerns
Of course, oversight practices like this also necessitate trustees having access to what is potentially confidential member information. This is an unreasonable requirement according to AFA CEO Phil Anderson, who said it may constitute a breach of the Privacy Act.
In a statement, Anderson explained: “An SOA is an agreement between a client and their financial adviser and contains a great deal of personal information about the client that should not be shared with trustees.”
On top of this, the Anderson argued that the wording of APRA and ASIC’s letter – specifically, that trustees shouldn’t rely on advisers attesting that services have been provided due to potential for conflicts of interest – “further undermines the reputation of the financial advice profession.”
Cost impacts
Indeed, while the letter does cite clear instances of misconduct regarding trustees and advice fees – charging fees to deceased members’ accounts, for example – it’s easy to imagine how more onerous requirements concerning advice through super could, in fact, lead to less advice being provided through super. This is a problem considering that super is one of the most accessible and affordable channels through which people can speak with a financial adviser.
As the FPA noted in its 2020 policy platform, super “provides an opportunity for many Australians to receive and pay for financial advice” that in many cases “would not be available from other sources”. Part of the reason for this, the FPA said, was that super’s favourable tax treatment “can reduce the cost of financial advice by as much as 40%.”
We don’t have any figures detailing the cost impact (for trustees or advisers) of these enhanced obligations, but they aren’t likely to be marginal. As Anderson put it in his statement, the new requirements “add to the already significant administrative burden on financial advisers.”
Given that the relevant members of Government reportedly have affordable advice “at the forefront of our minds,” as Senator Jane Hume put it when announcing the consolidated Quality of Advice review, this seems like an oversight.
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