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Asic gives some relief for intra fund advice – but does it go far enough?
ASIC has released Class Order 09/210 (Class Order) to give conditional relief from the requirements of section 945A of the Corporations Act 2001 (the Act) to Trustees of superannuation funds who give personal advice to members about their existing interest in a superannuation fund subject to limitations. It has also released Regulatory Guide 200 – Advice to super fund members (the Guide) the purpose of which is to:
give guidance on how the Class Order will apply;
discuss the boundaries between factual information and general and personal advice concerning an existing superannuation interest; and
the different methods of giving factual information and advice.
While this much awaited relief has been heralded with some fanfare, it does not relieve trustees of the main barrier to providing intra-fund advice. To take advantage of the relief they must hold an Australian Financial Services Licence (AFS Licence) to provide personal advice concerning superannuation products. Therefore, the Class Order relief falls far short of what some parts of the superannuation industry have been hoping for.
This update provides an overview of the relief offered and the limitations and conditions that apply to that relief.
What is the relief offered?
The Class Order offers relief from the requirements of section 945A of the Act to trustees of regulated superannuation funds and their authorised representatives. Note this relief will not extend to an external financial planning organisation used by the trustee to provide services to members.
This section is referred to as the “suitability rule” as it requires personal advice to be suitable for the member. This ensures that the personal advice is fit for its purpose. The entity providing personal advice must have a reasonable basis for the advice. The Class Order allows trustees to avoid having to:
determine the relevant personal circumstances of the member in relation to the advice to be given and make reasonable enquiries about those personal circumstances;1
consider the information obtained from the member about their personal circumstances and investigate the subject matter of the advice to the extent that is reasonable in all the circumstances;
give advice that is appropriate to the member having regard to its consideration of the personal circumstances and its investigation of the subject matter of the advice.
Trustee’s duty of care still applies
The Class Order states that its purpose is to give relief from section 945A to superannuation fund trustees and their authorised representatives who give personal advice to fund members about their existing superannuation fund.
Note the following statement at Part 2 of the Class Order:
“We are providing this relief because super fund Trustees are already in a special relationship with their members and subject to existing obligations to them under statute and at common law.”
Trustees have obligations under the Superannuation Industry (Supervision) Act 1993 (SIS) and at common law to act in the best interests of members of the fund. The Class Order relief does not protect trustees from actions taken under SIS or at common law should they elect to provide personal advice to members in reliance on the Class Order relief.
Trustees considering whether to rely on this Class Order relief must also consider whether it is in the best interests of members to give personal advice without making the enquiries that will otherwise be required by section 945A. Failure to make proper enquiries as to a person’s circumstances and to consider that information in the context of what advice is appropriate may therefore still need to be undertaken to meet the trustee’s duties even though relief is being given under the Act.
Any increase or additional risks being assumed by the trustee in reliance on the Class Order relief will also need to be considered in the context of its risk management strategy and insurance arrangements.
What are the conditions of the Class Order relief?
To rely on the relief offered by the Class Order from compliance with section 945A the trustee must meet all of the following conditions:
The Trustee must hold an AFS Licence that covers the provision of personal advice concerning superannuation products.
Limitation on type of advice
The advice given must be confined to the member’s interest in the superannuation fund and must not also relate to:
any other financial product; or
any of the things that are specifically treated as not being financial products under section 765A(1) of the Act,
other than eligible insurance2 concerning the member’s interest in the fund.
The advice must not relate to any of the following matters:
Member investment choice
An investment strategy where the member may exercise member investment choice and the option involves a financial product where the Trustee is required to give disclosure under section 1012IA of the Act;
Issue of a new interest in the fund
the superannuation interest is in the growth phase and the member elects to receive a pension concerning that interest or part of that interest3; or
where a member changes from one sub-plan to another sub-plan, or holds an interests in two or more sub-plans at the same time, and under the governing rules of the fund the member has an option, choice or election concerning that change4;
The issue of a new interest in the superannuation fund where:
Advice on SMSFs
The fund must not be a self-managed superannuation fund.
Information to be given to member
The relief offered by the Class Order applies only while the trustee meets the following conditions which require it to provide the member with the following information:
before or at the same time as giving the advice inform the member that the advice is limited to the member’s interest in the fund; and
when or as soon as practicable after the advice is given, inform the member that it is being provided in reliance on the relief under the Class Order and therefore is limited to the member’s interest in the fund.
The information in part (ii) must be given in writing. This information can be incorporated into the Statement of Advice (SOA). The Guide provides examples of how this wording can be used in an SOA.
Reliance on advice causes increase in fees and charges
If a member acting on the trustee’s advice would cause an increase in:
fees, costs or charges incurred concerning the member’s interest in the fund;
amounts payable by the member as premiums for eligible insurance;
remuneration (including commission) or other benefits payable concerning the member’s interest in the fund,
the trustee must notify the member in writing of the increase when or as soon as practicable after the advice is provided.
The amount of the increase must be expressed as an amount in dollars. Notice of the increase need only be to the extent that the Trustee knows or could reasonably be expected to find out about the relevant matter.
This information can be included in the Statement of Advice.
The Class Order relief is a step in the right direction. However, it falls far short of the industry’s expectation of obtaining the right to give basic financial advice to their members without the need of an AFS Licence to give personal advice. It is also important for trustee’s to carefully consider risks inherent in giving personal advice to member’s without proper enquiry given their obligations under SIS Section 52 covenants and their fiduciary duty to members under common law.
1 “relevant personal circumstances” is defined in the Corporations Act as concerning advice provided or to be provided to a person concerning a matter of such of the person’s objectives, financial situation and needs as would reasonably be considered to be relevant to the advice (section 761A).
2 “eligible insurance” means insurance of a kind that the trustee maintains concerning the members of the fund for the purpose of financing benefits to members that are within the scope of theSuperannuation Industry (Supervision ) Act 1993
3 Regulation 7.1.04E(1) Corporations Regulations 2001
4 Regulation 7.9.02(4) Corporations Regulations 2001