Final QAR report clarifies super’s return to advice

Financial Services Minister Stephen Jones published the final Quality of Advice Review report on Wednesday, revealing a comprehensive list of 22 recommendations.

And among them — under number six to be exact — is the recommendation suggesting superannuation funds should be welcomed as advice givers.

Namely, the recommendation reads: “Superannuation fund trustees should be able to provide personal advice to their members about their interests in the fund, including when they are transitioning to retirement”.

Moreover, according to the QAR, superannuation fund trustees should have the power to decide how to charge members for personal advice they provide to members and the restrictions on collective charging of fees should be removed.

Providing more clarity in her 267-page final report, Ms Levy explained that all the recommendations in her report apply to superannuation funds just as much as they do to other financial institutions.

This, she explained, means that more financial product advice given by superannuation funds to their members will be personal advice, which consequently ensures that it will be “good advice”.

“If the advice is given by a financial adviser, the adviser will have to comply with the good advice duty and the best interests duty. This will improve the quality of advice,” she said.

In disclosing her thought process and detailing consultations held with superannuation funds, Ms Levy revealed that many of the funds currently do provide general advice to their members.

“It is important to note I have not recommended that superannuation funds give advice on a broader range of topics than they do today,” Ms Levy said.

Under her recommendation, the QAR reviewer clarified that what she is proposing would in fact lift consumer protections.

Namely, while funds would be able to continue to provide general advice to their members, that advice would be limited to impersonal seminars, newsletters, and on their websites.

However, if a trustee sends a letter, email or message on an app to a member about whom it has personal information and it looks and feels like a personal letter, email or message (because it is addressed to the individual member), and if it contains a recommendation to make a decision about the member’s superannuation, this would then fall within the net cast by personal advice.

In this case, Ms Levy explained, super funds will need to satisfy the good advice duty.

“This is even if the trustee has chosen the member on nothing more than their age and even if the trustee has not, as a matter of fact, taken into account any of the information they have about the individual member. Because the trustee will have information about the member’s financial situation, when they provide the recommendation, this will be personal advice,” Ms Levy said.

Turning to intra-fund advice, Ms Levy expounded on the proposals paper in which she expressed worry that trustees interpret section 99F of the Superannuation Industry (Supervision) Regulations Act (SIS) as giving them permission to provide certain kinds of advice to their members, and to use the administration fee charged to all members to meet the cost of doing so.

As such, Ms Levy has recommended that section 99F be removed. Moreover, she advised the government to amend the SIS Act further to expressly provide trustees with permission to apply fund resources for the purpose of providing personal advice to members about their superannuation.

“This would not mean the trustee or another adviser could not and should not consider all matters which are relevant to that advice and nor should it mean the advice could not include recommendations which are incidental to the advice about the member’s interest in the fund,” she said.

“These matters are likely to include the member’s financial situation, family situation, social security, and health. In many cases, the trustee (or adviser) would be required to do so in order to meet the good advice duty. If there is any doubt, this should be clear in the law.”

Responding to criticism regarding this recommendation in particular, Ms Levy clarified that superannuation funds are collective investment vehicles where expenses are routinely shared.

“Administration fees commonly include a percentage-based fee and so members with higher balances will make a greater contribution to fixed expenses than members with lower balances. It is the job of the trustee to determine how those expenses should be recovered and shared between members.

“The trustee’s duties to exercise its powers in the best financial interests of members, to promote their interests, to treat members of different classes fairly are all relevant,” she said.

Ultimately, Ms Levy’s objectives when making the recommendations in this chapter included giving super fund trustees “greater confidence” about the scope of the advice they can give to their members, as well as encouraging them to decide how to allocate the cost of providing advice between members.

Moreover, Ms Levy wanted to extend “more certainty” to fund trustees about paying advice fees agreed between a member and their financial adviser from the member’s superannuation account.

In summing up the importance of superannuation and advice, the QAR reviewer pointed to the Retirement Income Review which concluded that Australians approaching retirement would benefit from more financial advice.

“It is in my view in the interests of superannuation fund members to be able to get good personal advice from their fund,” Ms Levy reiterated.

Additionally, the review's recommendation 7 states that 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,” Ms Levy said.