Giving super trustees SOAs risks client privacy: FAAA

In a submission to the Senate regarding the first Delivering Better Financial Outcomes and Other Measures bill, the Financial Advice Association Australia (FAAA) reiterated the privacy risks around providing a client’s statement of advice (SOA) to their super fund.

According to the industry body, the proposed new Section 99FA of the Superannuation Industry (Supervision) Act (SIS Act) has “generated significant concern”, stating it could be interpreted to mean trustees would be required to review financial documents for each client each year to confirm fees are being appropriately charged.

“We strongly oppose the trustee reviewing client level data, such as SOAs for every client. This would be costly and inefficient for both trustees and advisers, with the cost ultimately being paid by consumers,” it said.

“This is highly problematic; there are clear privacy issues involved in such an outcome.

“This provision will facilitate the disclosure to the super fund of each client’s personal information that would be inappropriate to share with them. This might include other super fund holdings, other sources of funds, and sensitive personal health information.”

FAAA chief executive Sarah Abood has previously flagged that the group has “strong” concerns about these onerous additional processes.

“This legislation places specific obligations on them [super fund trustees] before advice fees can be paid (under a new sub-section, 99FA, of the Corporations Act). There is no clarity as to how these obligations will be met by trustees,” Abood said.

Speaking at an FAAA roadshow in Sydney last week, Abood once again drew attention to these concerns.

“There’s some concern that the new wording of this section, section 99FA, will require super trustees to audit every piece of financial advice where a consumer has asked the trustee to pay their advice fee,” she said.

“We don’t believe that that was the intent of the legislation. But we think it’s important that that be resolved because otherwise, we’ve got the issue that we might be robbing Peter to pay Paul here. That we’re saving red tape and cost in one area and we’re creating more somewhere else.”

In its submission, the FAAA said despite its long-running argument that “a level of commonsense” needs to be applied to the Sole Purpose Test (SPT) and that “Privacy Act obligations” should be taken into account, this was not done in the new Section 99FA of the SIS Act.

“As drafted, the new s99FA of the [SIS Act] would require an adviser to provide a client’s full SOA and other documentation to the superannuation fund,” it said.

“SOAs can be over 100 pages in length and, under the law, must include the client’s relevant circumstances, which is detailed information that we consider is inappropriate to disclose to the fund.

“At present, advice firms who provide advice documents to trustees, need to spend a significant amount of time redacting personal information. This alone highlights a flaw in this regime.”

Potential solutions

In the case where the law still requires the provisions of this type of information at a client level, the FAAA suggested that other options should be considered to meet the need such as “the provision of a letter of engagement or an ongoing fee arrangement that does the same thing”.

In the submission, it suggested two potential models that could be implemented to address the issue.

The first suggestion was that trustees should be able to take a “risk-based approach” and utilise one or more of the following processes:

• “Reviewing the first couple of cases that an adviser submits with that trustee, followed by spot checks on a random basis. This would be limited to reviewing terms of engagement and/or ongoing fee arrangement agreements. We would envisage that random checks, under a risk-based model, would only involve looking at appropriate documents for around one in a hundred client files.
• Reviewing cases that sit outside certain parameters, such as the scale of the fees (possibly defined as a fixed dollar amount or a percentage of funds under advice), or where a complaint has been received. Some trustees already apply this approach.
• Reactive checking of further cases when a problem has been identified with another client for the same adviser.”

The second suggestion was a “reliance-based model”, explaining: “It should be possible for trustees to place reliance upon either licensees or advisers in terms of compliance with the SPT obligation,” the FAAA said.

“This could be achieved as a blanket exemption based upon some form of attestation by the licensee or even by individual advisers.

“The trustee would obviously retain the right to undertake independent reviews, particularly where there were any signs to suggest that a problem existed.”

Additionally, it stated that exemptions should be made for those in the pension phase, arguing “these members already have the right to have this money released and the provision of a complying consent form should be sufficient”, and those over the age of 60, “as they have met their preservation age and accessing their super is relatively easy under a number of circumstances”.