SMC and ASFA lead push for EM clarifications on section 99FA

While the advice profession is broadly supportive of the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024, it has expressed fierce opposition to a reworked section 99FA of the SIS Act, arguing that it would only exasperate the red tape and therefore the cost of advice.

The changes proposed in the bill require funds to review clients’ statements of advice (SOAs) before they can satisfy members’ requests for payment of advice.

The advice profession recently learnt that the government had amended the explanatory memorandum (EM) to clarify that it does not require a rigorous review of each SOA, however the profession and legal experts have argued that changes to the EM are not adequate and that the legislation itself needs to be amended.

The controversial changes to section 99FA took centrestage during the Senate economics legislation committee’s public hearing into the first bill stemming from the Quality of Advice Review.

Speaking before the senate, the Super Members Council (SMC) said it strongly supports the changes and believes they do not alter the status quo, however, the Financial Advice Association Australia (FAAA), the Financial Services Council (FSC), and the Law Council of Australia (LCA), among others, argued otherwise.

Nathan Hodge, the head of submissions for the LCA’s superannuation committee, said: “We would say that the courts would likely place limited weight on the explanatory memorandum in this situation.”

Having a look over the submissions filed to government back in May, it becomes clear that it was the SMC and ASFA who first proposed additions be made to the EM to clarify that the intent of the legislation is for trustees to be able to continue to take a risk-based approach.

“To give further clarity, the government include a statement of intent for trustees to be able to continue to take a risk-based approach in the updated explanatory memorandum and the formal parliamentary consideration processes of the legislation,” the SMC said in its submission to government last month.

Similarly, ASFA, in its own submission, said its members need certainty in continuing to discharge their oversight obligations around the deduction of advice fees from members’ accounts.

“To ensure certainty for trustees regarding their oversight of the deduction of advice fees from members’ superannuation accounts, an additional statement in the explanatory memorandum to the bill should clarify there are no unintended impacts on trustee obligations,” ASFA said.

AustralianSuper, also at the time, filed its own submission to government arguing that “a clear statement in the explanatory memorandum, or from the regulators, that similar expectations will continue to apply to the amended law, would provide trustees with comfort that provided they are proactively and regularly sampling advice documents, they do not need to build new governance and assurance processes, the cost of which would be passed onto members”.

Conversely, the FAAA argued in its submission that “changes to the EM will not address the prospect of significant variation existing in the marketplace and inefficient processes becoming dominant”.

Similarly, the FSC has called for explicit changes to the bill’s provisions to ensure the regulatory burden on trustees and advisers does not increase.

While the Minister for Financial Services, Stephen Jones, has previously said that it was not his intention to create additional checks, the minister has since focused his attention elsewhere.

The senate report on the DBFO is due to be released this Thursday.