Did the government really heed Levy’s advice on s99fa changes?

Speaking at an event in Sydney on Tuesday, the Financial Services Minister said the government followed recommendation seven made by Michelle Levy in the Quality of Advice Review (QAR) when it decided to tackle section 99fa of the SIS Act.

“The Quality of Advice Review said that there is some shaky legal ground for paying financial advice out of superannuation. As a responsible government, we thought it was something we needed to fix up,” Jones told an audience of advisers.

“We think members should be supported by financial advice on how to ensure their superannuation is meeting their needs and paying for advice fees out of superannuation meets that goal. That’s the only reason we’re touching the law, to put it on substantial legal footing.”

However, looking back at Levy’s final report, her recommendation says that super trustee must obtain consent to pay a fee out of a member’s super account for financial advice, but does not suggest that funds need to check every statement of advice (SOA) to satisfy that the advice provided is indeed about the member’s interest in the fund.

Recommendation seven reads: “Superannuation trustees should be able to pay a fee from a member’s superannuation account to an adviser for personal advice provided to the member about the member’s interest in the fund on the direction of the member.

“The objective of this recommendation is to provide superannuation fund trustees with more certainty about paying advice fees agreed between a member and their financial adviser from the member’s superannuation account and ensure that adviser fees are not paid in breach of the SIS Act and are not taxable benefits for members.”

Breaking it down for ifa last month, Hamilton Locke financial services partner Simon Carrodus said the action from the government simply does not meet its mandate.

“The frustration is that we went through the Quality of Advice Review and Michelle Levy did some fantastic work. She consulted broadly and spoke to major players on all sides of the debate, domestically and internationally,” Carrodus told ifa.

“She came up with a list of recommendations, one of which is recommendation seven, which basically says the super trustee must obtain consent, of course, to pay a fee out of a member’s super account for financial advice. That’s fine, but she said we need to streamline it and make it easier for super trustees to comply.

“Super trustees want certainty around what their obligations are. They generally do not have qualified financial advisers on staff, so how are they supposed to review a SOA and determine whether the requirements of the Corporations Act have been satisfied? There’s so much uncertainty for super trustees. The purpose of recommendation seven was ‘provide superannuation fund trustees with more certainty about paying advice fees agreed between a member and their financial adviser’ and this legislation misses the mark.”

Carrodus conceded that the existing version of s99fa also creates issues but cautioned that “changes to s99fa don’t really move the needle”.

“The industry was looking for something more significant and [Minister Stephen Jones] really hasn’t provided that,” Carrodus added.

“He’s dropped the ball on recommendation seven, even though his media releases say, ‘we’re streamlining it, we’re implementing it’. He’s missed an opportunity here”.

Carrodus explained that, in order to provide certainty for super trustees and financial advisers, s99fa needs to be more prescriptive in terms of what is not required of super trustees.

“Perhaps super trustees should be required to do a sample check of, say, 5 per cent of new advice fees up to a maximum of 50 per year, and that review should be limited to ensuring a SOA is in place, the SOA covers super/retirement and the member has provided their consent. The legislation should clarify that super trustees are not required to review the whole SOA,” he said.

“It needs to be more prescriptive about what a super trustee is required to do and what they are not required to do. That’s what certainty looks like. That’s what a lot of us were expecting, and we are disappointed about an opportunity missed.”