In brief 10 min read
We said at the outset of this pandemic that financial advice will play an important role in supporting members who are considering whether to access their super early. Alive to that, ASIC recently released a series of measures to facilitate access to financial advice, including a temporary no-action position for advice on the early release of superannuation. Great – we thought – this is just what is needed. But, having ripped the wrapping paper off, are we being ungrateful if we say that we're a little … underwhelmed?
By now, funds are grappling with the new operational requirement to release as soon as possible superannuation to members that have requested it, in line with the Federal Government's COVID-19 early release measure. For many members who have already made this request, there may not have been time for reflection or consideration of the long-term effect. Having said that, if the money is necessary now, the longer-term consequences of having made a dent in their super are likely to have been a secondary consideration.
But for others, the thought process is more thorny, and members may be weighing up their financial situation more generally before taking the plunge to access their super account. The first port of call for assistance with this sort of decision is often their own superannuation fund. The trustee may have collated links to useful websites such as the ATO's or, perhaps, released flyers that contain general advice on the impacts of accessing superannuation early.
But what about the member who needs personal advice?
Assistance may come in the form of intra-fund advice. Intra-fund advice is a subset of personal advice that makes its legislative appearance only in the rules about fees and costs in section 99F of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act).
By way of reminder, s99F of the SIS Act prohibits a trustee from charging all members for personal advice provided to a person:
- where the person reasonably expects that advice will be provided on an ongoing basis (ie the person reasonably expects that the trustee or provider will review the advice, provide further personal advice or monitor the implementation of recommendations it has made).4
In short, intra-fund advice is personal advice that:
- is provided by a trustee of a superannuation fund, or by another person under an arrangement with the trustee, to a member of the fund;
- is solely about the member's interest in the fund; and
- may be paid for by all members of the fund, usually through the administration fee.
In this last respect, it can be contrasted with personal advice provided to a member of a superannuation fund for an adviser service fee that is also paid for from fund assets but is attributed by the trustee to that individual member's superannuation account. This is probably the only real difference between intra-fund advice and any other personal advice that can be paid for from superannuation fund assets consistently with the sole purpose test. In both cases, the trustee can pay for advice to a member about the member's investment options, about their insurance and about whether to make additional contributions and to cash a benefit, including now, under the coronavirus condition of release.
We turn here to ASIC's announcement of three temporary relief measures aimed at providing affordable and timely financial advice during the COVID-19 pandemic. These include relief extending the period for giving time-critical statements of advice, and permission for registered tax agents to give advice to existing clients about early access to superannuation without needing to hold an AFSL. The second of these is not relevant for intra-fund advice.
ASIC has also issued a temporary no-action position, which (at first blush) helpfully confirms that, from 14 April 2020 until 25 September 2020, it will not take regulatory action against trustees solely for failure to comply with s99F where all of the following apply:
- personal advice is provided, either by the trustee or by someone who is providing the personal advice under an arrangement with the trustee;
- the advice is directly focused on advising the member whether they should access the COVID-19 early release scheme, and is not about other topics or subject matter;
- the advice addresses the following as relevant for the member (including making reference to household circumstances as needed to provide appropriate advice to the member);
- the member’s need for the early release of their superannuation (eg cashflow and budgeting relevant for the member);
- government benefits available to the member (eg JobKeeper Payment, income support payments, household support payments);
- the member’s alternative sources of support or relief (eg loan or rent relief, existing financial resources and access to the COVID-19 early release scheme from another superannuation fund); and
- the impact on the member’s retirement income by accessing the COVID-19 early release scheme.
As well as the conditions regarding what the advice must focus on and address, to rely on this no-action position, trustees are subject to a number of other conditions, including that:
- either, before first relying on the no-action position or within 30 days of first relying on it, a trustee must inform ASIC that it will do so;
- the member must have sought the advice (rather than the trustee or other relevant provider initiating the advice);
- before providing the advice, the advice provider must:
- determine that, in the advice provider’s opinion, the member is likely to be eligible for the COVID-19 early release scheme;
- clearly describe the scope of the advice;
- make the member aware of relevant public factual information and existing general advice of the fund concerning the COVID-19 early release scheme;
- confirm that, notwithstanding this information and the advice, the member wishes to seek more advice; and
- if a trustee engages an external provider to provide the advice, this must be done at a cost to the fund consistent with the trustee’s best interest duty and in line with the expectation that the only advice to be given is directly related to whether to access the COVID-19 early release scheme.
ASIC proposes to conduct limited surveillance to monitor the advice given under this relief.5 We query whether there will be anything to monitor.
ASIC's reasoning for the no-action position is that current regulatory settings may not always allow for a member to be given sufficiently holistic advice about accessing the COVID-19 early release scheme at a cost to the fund rather than to the individual member. In particular, in the context of the current exceptional circumstances, ASIC is concerned that intra-fund advice may not allow for the financial position of a member’s household to be taken into account.
The concern is admirable but, we think, misplaced. There is nothing in the intra-fund advice definition that would prevent a trustee from taking into account all relevant considerations in providing members with personal advice about, say, which investment options to choose. This may well require consideration of the financial position of the household. It is the topics on which the trustee may give advice that are limited by s99F, not the matters that are relevant to that advice. And so, when we look a little closer at the detail, we wonder what the no-action position really adds, and question the necessity of complying with ASIC's additional conditions and notification obligation.
It seems to us that where a trustee is appropriately licensed or has an appropriate arrangement in place with an advice provider, COVID-19 early release advice could already be provided in circumstances where members, as a whole, pay for the advice given to individual members without a trustee breaching the prohibition in s99F.
We say that, because:
- the early release scheme is temporary and a member is only permitted to make one drawdown this financial year, and one next – we struggle to see how a member would reasonably expect that any advice given in relation to this option would be given on an ongoing basis;
- nothing in s99F would prevent a trustee from providing personal advice that takes a member's holistic and household circumstances into account (that being the very nature of personal advice and the requirements of the best interest duty); and
- any further assistance that a member needs to put the advice into practice and elect to access their super early is also excluded from the s99F prohibition (noting that '[p]roviding assistance to a member to implement the original advice' was deemed to sit outside the remit of 'ongoing advice' in the Explanatory Memorandum to the Act that introduced s99F6).
In a way, ASIC acknowledges this, and says that there are a number of ways that trustees can already help without relying on the no action position, including by providing intra-fund advice that is within the terms of s99F. That only adds to our sense of feeling a little unsatisfied.
Leaving aside whether a trustee really needs to rely on the no-action position, ASIC does correctly reiterate that intra-fund advice is, of course, still personal advice and that the other Corporations Act 2001 (Cth) obligations (such as record keeping and the best interest duty) continue to apply.
In this regard, trustees may also be able to rely on new ASIC relief from providing a statement of advice where:
- a record of advice, which meets certain content requirements, has been given instead;
- the advice provider has established that the client is entitled to the early release of their super; and
- the client has approached the advice provider for the advice.7
ASIC itself states that access to 'quality advice'8 is important for consumers to decide whether they should take the significant step of accessing their superannuation early. We agree, but the final condition to rely on this relief is that the advice fee charged to the client must be capped at $300. We are not financial advisers, and perhaps we are way off the mark, but given that time spent preparing the record of advice would also have to be absorbed in that cost, it seems to us that this relief would only be available in circumstances where very limited personal advice has been given. What that says as to quality, we will leave for you to consider.
Because there is usually not a separate fee charged to a member for intra-fund advice (that's its point), this relief (ie the permission to give a record of advice instead) will generally be available to superannuation trustees. But where intra-fund advice is given, the costs of a statement of advice are charged to the fund, not the member, so we question what this really adds for trustees or a member over and above the status quo. In reality, this relief seems to be for the tax agents or advice providers who are giving advice outside of the intra-fund advice regime. In short, we don't see much for superannuation trustees here either.
Trustees are not required to offer intra-fund advice to members and, in many cases, they do not because it comes with all of the usual obligations and liability – namely, the best interests duty, minimum training and education requirements for the advisers, and an obligation to provide a statement of advice.
Given these impediments and the intention to assist trustees to provide advice to members about the COVID-19 condition of release – and as well-intentioned as the measures described above are – one might have hoped for some relief from these obligations instead.
Section 99F(1)(c)(i) of the SIS Act.
Section 99F(1)(c)(ii) of the SIS Act.
Section 99F(1)(c)(iii) of the SIS Act.
Section 99F(1)(c)(iv) of the SIS Act.
ASIC's changes to regulatory work and priorities in response to COVID-19, the superannuation section.
See s1.45 of the Explanatory Memorandum to the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012 (Cth).
ASIC's temporary no-action position for expanded intra-fund advice on early release of superannuation relating to COVID-19.