Is the relief actually needed? 9 min read
ASIC has released Consultation Paper 351: Superannuation forecasts: updates to relief and guidance seeking feedback on proposals to extend and expand the relief for superannuation calculators and retirement forecasts. It has also released the draft relief instrument and draft regulatory guide.
ASIC says that both calculators and forecasts provide useful 'tools' to members to think about their superannuation. You may recall that ASIC granted class order relief from the obligation to hold an AFS licence to provide financial product advice and to give a financial services guide or statement of advice for providers of 'financial calculators' if the conditions in the class order are satisfied. They required that the 'the financial calculator does not advertise or promote a specific financial product' and they required the user to be able to change the default assumptions in the calculator. Similar relief was granted for retirement estimates that permitted trustees to include an estimate of a member's superannuation balance at age 67 based on the prescribed assumptions. The relief does not provide any relief from the best interests duty which will apply if the calculator or forecast provides personal advice. Having said this, it is unclear what it would mean to provide an estimated retirement balance in the best interests of the member which of itself might suggest that what is produced by the calculator is not 'advice'. As for the relief from holding an AFS licence authorising the trustee to provide financial product advice at all, that too is of extremely limited value given most, if not all, trustees hold a licence with at least a general advice authorisation.
The retirement estimate relief is due to expire on 1 April 2022 and extending that relief and expanding the relief for superannuation calculators is part of the Government's and ASIC's project to provide more people with more and better financial advice by encouraging superannuation trustees to provide personal advice to their members about their superannuation. In so doing they are acting in a way which is directly contrary to Commissioner Hayne's recommendation that superannuation trustees not be allowed to assume any obligations which may conflict with their obligations to members. The Government decided an exception was warranted where the conflicting obligation was to an individual member of the fund in circumstances where the trustee is providing personal advice. Of course, trustees do not have to give personal advice, but the proposals discussed in the Consultation Paper are part of a concerted effort to encourage trustees to do so.
Before turning to the terms of the proposed relief, the obvious question is whether it is needed at all? The relief proceeds on the basis that superannuation calculators and forecasts are financial product advice and often personal advice (although they do not give relief from the best interests obligation). Either of these things might be true, but not in my view in the way ASIC says.
ASIC describes superannuation calculators as 'facilities, devices, tables or other things (including online tools) that are used to make (or find out the result of) numerical calculations about superannuation. Most superannuation calculators start with default assumptions that are not personalised to any one member, but which can generally be altered by the member.' Indeed, it is a condition of the relief that the assumptions can be altered.
ASIC described retirement estimates as giving 'an indication of what an individual member’s superannuation balance will be at retirement age and their annual income during retirement. Retirement estimates are typically printed on a member’s periodic statement. Unlike calculators, retirement estimates provide a forecast without the member needing to first enter information themselves. Instead, the trustee uses data it already has about the member, including their current superannuation balance, age and level of contributions.' It is a condition of the relief that the estimate be included on, or accompanies, a periodic statement.
So, a calculator is something which, as its name suggests, performs a numerical calculation. Financial product advice is, as you will know, a recommendation, statement of opinion or a record of either. Clearly a numerical calculation is not a recommendation. Is it a statement of opinion? Well, it appears that ASIC thinks it is, or could be, because it is based on assumptions and estimates. However, I do not think that makes the calculation itself a statement of opinion. Instead, the provider of the calculator merely says that if one assumes these things (the inputs), the output will be 'x'. And that, in my view, does not mean x is a statement of the provider's opinion.
A forecast is also a numerical calculation and, again, because it is based on assumptions it is true that it may not in fact reflect what turns out to be the member's actual account balance when they turn 67. It is an estimate of what the member's retirement balance might be – but again, it is a numerical calculation based on all of the inputs. The output is a statement of fact, ie if all of these things are true, the member's balance at 67 will be 'x'. The fact that x is based on assumptions does not make x the provider's opinion.
Of course, it is possible that in the case of a calculator or forecast, x could be presented in a way or combined with other information or statements such that there is financial product advice. The cases are clear: even information can contain an implied recommendation or statement of opinion, and where that which is implied is intended to, or could reasonably be expected to, influence a person to make a decision about a financial product, that will be enough to be financial product advice. However, it appears that ASIC thinks that because the calculator or forecast is based on estimates, it is itself an opinion. Where that opinion is combined with a specific product or branding, ASIC also assumes that the opinion might be intended to, or reasonably be likely to, influence the member to make a decision about their superannuation. If that was correct, then this would be financial product advice and, where the calculation includes member-specific information, it is possible that advice would be personal advice.
ASIC says it proposes: 'to continue to provide relief from the licensing, conduct and disclosure obligations relating to personal advice for providers of superannuation forecasts by making a new single legislative instrument that covers both superannuation calculators and retirement estimates'. The relief is in the same terms as the current relief and will relieve a trustee that chooses to rely on it from requiring a licence authorising it to provide financial product advice, either general or personal, and from needing to give a member a financial services guide or statement of advice, if the trustee provides personal advice through its calculator or estimate.
ASIC says its relief will allow retirement estimates or forecasts to be interactive and available on member portals and not merely on periodic statements. In short, retirement estimates and calculators can be substantially the same things. Consistent with that, ASIC intends to issue a single legislative instrument applying to both calculators and forecasts. There will be greater flexibility for trustees in explaining what the calculator or estimate is for, along with its limitations, and they can both be populated by the trustee with member-specific data and the assumptions can be better tailored for the fund and member. Assumptions will be a mix of those set by the trustee (eg about fees and investment returns), and by ASIC (eg about retirement age, drawdown rates for pensions and inflation rates).
However, neither can 'advertise or promote a financial product'. ASIC says in the draft regulatory guide:
'We are concerned that if a superannuation forecast advertises or promotes a specific financial product (eg one of a trustee’s superannuation or retirement income products), it increases the risk that members will, for example: (a) misunderstand the purpose of the forecast; (b) place too much reliance on the forecast when making financial decisions; (c) assume the forecast is a complete substitute for personal advice from a registered financial adviser who is authorised to provide personal advice; and (d) assume the forecast is making a recommendation that is in the member’s best interest and takes into account their objectives, financial situation and needs.'
There are two points to make about this. First, it may take very little to be taken to advertise or promote a financial product. The draft regulatory guide says a trustee will not do so merely by using the product name and the member's investment option on the calculator or forecast. But I think this is fairly stinting and it is hard to see any harm in extending that relief to allowing a trustee to use its branding and livery. Like the current relief, it is doubtful a trustee could safely do so based on this.
The second point goes to the most surprising statement, which I have italicised above. I remind you first that the relief is only required because ASIC thinks the trustee will be providing a recommendation or opinion when it provides a forecast. The relief will include relief from the requirement to provide a statement of advice and, therefore, ASIC assumes that at least some of the time that recommendation or opinion will be personal advice. As noted above, I doubt a calculator or estimate of themselves will provide financial product advice, but if they do (and I acknowledge they could be presented in such a way and they could be combined with other material in such a way that they do), that financial product advice is very likely to be personal advice because it will be based on information the trustee has about the member which may well be information which, if it does not include their needs or objectives, will include some part of their financial situation. Now, it is an open question how much information is needed to amount to a financial situation, but if the amount is sufficient, then any advice will be personal advice.
In that case, under the relief, the trustee will not need a personal advice authorisation and it will not have to give the member a statement of advice, but the trustee will have to comply with the best interests duty in the Corporations Act. This means the trustee must act in the best interests of the member in making the recommendation or statement of opinion when making a forecast. Accordingly, the assumption ASIC worries a member will make - that a trustee's recommendation or statement of opinion is in the member's best interests and takes into account their objectives, financial situation and needs - must surely be a reasonable one because there is no lawful basis for the trustee to do otherwise, or at least not if it wants to rely on the safe harbour for the best interests duty. Having said this, it is abundantly clear the safe harbour steps were not designed with a calculator or estimate in mind. For that reason I would suggest the relief should extend to the best interests duties under Part 7.7A of the Act.
If you would like to let ASIC know what you think about all of this, you have the Christmas and New Year break to do so. Submissions are due by 28 January 2022.