Following on from their initial response to the Royal Commission, APRA and ASIC have issued a joint letter identifying a “range of industry practices” in relation to fees being charged to super member accounts without an accompanying service being provided.
The letter explains that APRA and ASIC “expect all trustees to be reviewing the robustness of their existing governance and assurance arrangements for fees charged to members’ superannuation accounts, and to address any identified areas for improvement in a timely manner.”
Should these reviews, which are to be completed by June 30, uncover any “significant issues or deficiencies in the risk management systems and processes of trustees,” the regulators expected “urgent consideration” as to any breaches and whether remediation should take place.
What are the key issues being examined?
The letter asks trustees to consider four questions. First, they should examine whether deductions made from members’ super accounts are “explicitly authorised by members” and consistent with the disclosures made to members.
Next, trustees should consider whether services have been provided – examples of where this might not be the case include when the adviser ceases practice, members have no access to advice services or in the event of a member’s passing.
After that, trustees should identify whether deductions pass the sole purpose test, where costs associated with advice relate only to super and insurance obtained through super. And finally, trustees must consider whether the deductions were in the member’s best interest.
What’s being asked of trustees?
ASIC and APRA want to see trustees implementing preventative measures “such as ensuring appropriate authorisation processes for deductions are in place and promoting understanding by financial advisers and members.”
The regulators also want measures that are “interrogative” – that is, regularly checking that services are being provided in accordance with costs being deducted – and “remedial,” so that members are adequately compensated in the event of an erroneous charge to their accounts.
What the regulators plan to do
After trustees have conducted their reviews, the regulators “will continue to engage with trustees in relation to the robustness of their policies and practices for management and oversight of such fees charged to members’ superannuation accounts and reserve the right to exercise our powers in relation to any subsequent enforcement action required.”
Wrapping it up
Given the increasing availability of financial advice through superannuation, it’s clear regulators will be more closely examining the arrangements between the advice and super sectors. Given the amount of public outrage directed towards fees-for-no-service during the Royal Commission, further reviews are likely.
The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice Education Pty Ltd or its related entities. All content is intended for a professional financial adviser audience only and does not constitute financial advice. To view our full terms and conditions, click here.
