Jones reverses course on section 99FA

The amended supplementary explanatory memorandum, published on Thursday, details amendments being made to the bill in order to address concerns raised by stakeholders at the most recent Senate economics legislation committee hearings.

These concerns include the possibility that the bill, as first drafted, could be interpreted as requiring trustees to assess each piece of advice, rather than being able to take a risk-based compliance approach.

In order to quell the alarm, Financial Services Minister Stephen Jones has moved parliamentary amendments to omit language in paragraph 99FA(1)(a) which would require that the financial product advice in respect of which costs are charged is wholly or partly about the member’s interest in the fund; and repeal paragraph 99FA(1)(b), which would require that the amount charged does not exceed the cost of providing financial product advice about the member’s interest in the fund.

“These changes are intended to give trustees assurance that the bill does not alter the current regulatory approach and that they may continue to utilise robust risk-based assurance processes,” the supplementary explanatory memorandum reads.

Expounding on this, it further explains that those two requirements replicate existing requirements in the SIS Act.

“Trustees are subject to the sole purpose test in section 62 of the SIS Act, which requires trustees to ensure that the fund is maintained to provide benefits to the member. In addition, trustees have a duty to act in the best financial interests of the member under paragraph 52(2)(c) of the SIS Act.

“These broader obligations already apply to trustees exercising their discretion to charge relevant fees for personal advice to the member in accordance with section 99FA (the original section and as amended). It is expected that in complying with section 99FA, as amended by these parliamentary amendments, trustees would continue to ensure the relevant advice and costs relate to the member’s interest in the fund in order to satisfy their broader obligations.”

The document highlights that, “considering those broader obligations”, trustees still maintain the discretion on whether to pay the cost of financial product advice at the request or consent of a member.

“As such, removal of the references to the member’s interest in the fund does not, and is not intended to, impact the existing regulatory requirements and consumer safeguards applicable under the SIS Act in relation to financial advice,” the explanatory document adds.

It also clarifies that minor amendments have been made to language about providing advice, to more clearly address the range of situations in which financial product advice may be provided or procured.

Moreover, the document asserts that trustees are expected to continue to take a robust, risk-based approach to comply with their obligations under section 99FA as amended and the SIS Act more broadly.

In a statement on Thursday morning, the Financial Services Council (FSC) welcomed the government's amendments, with chief executive Blake Briggs saying the FSC now supports the passing of the bill.

“The government’s amendments will provide superannuation trustees greater legal certainty when deducting advice fees on behalf of superannuation consumers and will reduce the regulatory impact on financial advisers and advice businesses," Briggs said.

“The amendments and supporting explanatory memorandum make it clear that trustees’ current risk-based approaches to assessing advice fee deductions remain appropriate.

“The Assistant Treasurer has continued to consult with industry and the FSC recognises the collaborative approach he has taken to work towards the common goal of making financial advice more affordable and accessible for consumers.

“The FSC supports the amended bill passing the Parliament, which will serve as an initial down payment before the next tranche of reforms that will expand access to lower cost financial advice for millions of Australians.”

More to come.