In response to a discussion paper on enhancing member outcomes from the Australian Prudential Regulation Authority (APRA), the Financial Advice Association Australia (FAAA) said there should be updated guidance once the Quality of Advice Review (QAR) reforms are finalised.
As part of the discussion paper, APRA said it plans to retire the 2001 Superannuation Circular III.A.4 Sole Purpose Test, its most recent guidance on the matter, and is “not currently minded to issue new guidance on the sole purpose test”.
The FAAA, however, stressed that with so much change in the financial services regulation space since this guidance was delivered, it should instead be “updated and include relevant examples, once the Quality of Advice Review (QAR) legislation has been finalised”.
“Specifically with respect to financial advice, when the existing guidance was released, the predominant form of adviser remuneration was commissions,” it said.
“This has now completely changed. Therefore, in our view, updated guidance is both necessary and appropriate.”
Noting the government’s planned changes to the way super funds are able to provide advice, the FAAA specifically noted language within the “Delivering Better Financial Outcomes – Detailed Overview” paper, in which the government said it would introduce a comprehensive framework for superannuation advice by:
- Legislating consistent rules on what advice topics can be paid for via superannuation. The same list of advice topics will apply to collectively charged advice, and advice that is charged direct to the individual member’s superannuation account.
- Allowing superannuation funds to consider a broader range of a member’s personal and household circumstances such as debt, spouse’s income, or age pension eligibility.
“This statement suggests probable changes to the sole purpose test, as at present advice on the members debt, spouse’s circumstances and entitlements to the age pension would not be considered to be consistent with the sole purpose test,” the FAAA said.
“If APRA does not provide guidance after such substantial additional changes, trustees will individually make decisions as to whether fees for certain types of advice are appropriate, or not.
“This will inevitably lead to major differences in approach across the superannuation sector, leaving members of one fund in a position where their advice fees can be paid from their superannuation, whereas members of other funds will not have this option.”
The FAAA reiterated that “guidance is important”, particularly with respect to the likely changes that will come out of the QAR legislation.
“Greater certainty with respect to the application of the sole purpose test will be beneficial for clients, in having certainty regarding how they can pay for their advice, for advisers in efficiently arranging payment for their services, and superannuation fund trustees in processing payments for financial advice,” it added.
