Giving and collectively charging for intra-fund advice
This information sheet gives guidance to superannuation trustees and other persons on giving and collectively charging for certain types of simple superannuation advice under the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012 (Stronger Super reforms), which modifies the Superannuation Industry (Supervision) Act 1993 (SIS Act).
The purpose of this information sheet is to provide guidance to industry about what may and may not be collectively charged, what the record keeping requirements are and to outline the other reforms that may affect the giving of advice.
What is intra-fund advice?
‘Intra-fund advice’ refers to the types of advice that a superannuation trustee can provide to members where the cost of the advice is borne by all members of the fund. If you are a trustee that is a registrable superannuation entity (RSE) licensee, under the Stronger Super reforms, you can offer intra-fund advice to members of the fund after 1 July 2013.
The objective of the Australian Government (Government) is that superannuation funds can continue to provide a member with simple, non-ongoing personal advice on the member’s interest in the fund and that this advice can be collectively charged across the fund’s membership: see the Explanatory Memorandum to the Stronger Super reforms (Explanatory Memorandum), paragraph 1.3.
If you offer a MySuper product, intra-fund advice must be available to all members on the same terms. You may offer intra-fund advice on any MySuper product or Choice product in a superannuation fund. The intra-fund advice may be provided by you directly or by another person acting as your employee or under an arrangement with you.
When can I collectively charge for advice?
A superannuation trustee may collectively charge for personal advice where the advice is not ongoing and does not fall within one of the prohibitions: see ‘What are the restrictions on collectively charging for advice?’.
The types of advice for which a superannuation trustee is likely to be allowed to collectively charge, where the advice is not ongoing, include advice to a member about:
the extent of cover provided by the insurance arrangements that apply to the member’s interest in the fund and the types of cover that may be suitable for them
increasing contributions, and
changing investment options within a fund.
Please note this is not an exhaustive list.
See Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244) for guidance on how to provide advice on some of these topics in a scaled manner.
What are the restrictions on collectively charging for advice?
You are restricted from collectively charging members for various types of personal advice. For example, you cannot charge across the membership of the fund or any other member (apart from the advice recipient) for types of advice that are likely to be more complex and ongoing in nature.
Where one or more restrictions apply to an advice situation, the member who receives the advice should incur the cost of that advice, rather than the membership of the fund as a whole or any member or members. The receiving member must bear the cost of the advice and it is prohibited for any other member to bear the cost, directly or indirectly.
The circumstances in which you may not collectively charge are set out in s99F of the SIS Act. In summary, you may not collectively charge members for personal advice that is given in one or more of the following circumstances:
The person to whom the advice is given has not acquired a beneficial interest in the fund, and the advice relates to whether the person should acquire such an interest.
The advice relates to a financial product other than a beneficial interest in the fund, a related pension fund, a related insurance product or a cash management facility within the fund.
Note: For the definitions of these terms, see s99F of the SIS Act, or in the case of a ‘cash management facility’ within a fund, s946B(1) of the Corporations Act 2001 (Corporations Act).
The advice relates to whether the member should consolidate their superannuation holdings in two or more superannuation entities into one.
The advice is ongoing personal advice, to the extent that there is a reasonable expectation that you or a person acting on your behalf as an employee or under an arrangement with you will periodically review the advice, provide further personal advice and monitor the implementation of recommendations or their results.
Other circumstances that are prescribed in future regulations: see s99F of the SIS Act.
In addition, personal advice that is provided to an employer of one or more members of the fund may not be charged through a fee charged to members of the fund: s99C of the SIS Act. This prevents commissions and other costs being deducted from employee balances for advice that the employer receives: see paragraph 1.9 of the Explanatory Memorandum.
If you offer a transition-to-retirement (TTR) strategy, you might not be allowed to collectively charge members for advice, unless the advice is given for a related pension fund and is not ongoing. Superannuation trustees should carefully consider whether they can collectively charge for certain TTR advice, depending on whether the advice is ongoing and its complexity. Not all TTR advice can be collectively charged, particularly if it does not involve a related pension fund.
What about MySuper and conflicted remuneration?
If you apply for an authorisation to offer a MySuper product, you must not deduct any amount from the MySuper product that relates to making a commission payment to a financial adviser: s29SAC(1)(a)(i) of the SIS Act. In addition, you must not charge a member a fee for a MySuper product that relates to costs of the fund in paying an amount to another person that you know, or reasonably ought to know, relates to conflicted remuneration paid by that other person to an Australian financial services (AFS) licensee, or a representative of an AFS licensee: s29SAC(1)(a)(ii) of the SIS Act.
As discussed below, the SIS Act extends the meaning of conflicted remuneration beyond the definition under the Corporations Act: see s29SAC(3) of the SIS Act. The Corporations Act defines conflicted remuneration as any benefit given to an AFS licensee, or its representative, who provides financial product advice to retail clients that, because of the nature of the benefit or the circumstances in which it is given, could reasonably be expected to influence:
the choice of financial product recommended to clients by the AFS licensee or representative, or
the financial product advice given to clients by the AFS licensee or representative: s963A of the Corporations Act.
In March 2013, we provided guidance on complying with the conflicted remuneration provisions and other banned remuneration in Divs 4 and 5 of Pt 7.7A of the Corporations Act: see Regulatory Guide 246 Conflicted remuneration (RG 246).
Your authorisation to offer a MySuper product can be cancelled by the Australian Prudential Regulation Authority (APRA) if it is satisfied that you have charged conflicted remuneration. If you are an AFS licensee, ASIC may also take regulatory action in this case.
How do the FOFA reforms apply to intra-fund advice?
The Future of Financial Advice (FOFA) reforms introduced a number of new requirements into the Corporations Act, including the best interests duty and a ban on conflicted forms of remuneration. These requirements are contained in Pt 7.7A of the Corporations Act.
If you provide intra-fund advice, you must ensure that the advice complies with the requirements in Pt 7.7A (except for the opt-in requirement, which is discussed below). This is clear in the Explanatory Memorandum.
This means that all personal advice, including intra-fund advice, that is provided to members must comply with Pt 7.7A of the Corporations Act, including:
the best interests duty (s961B)
the obligation for advice to be appropriate (s961G), and
the conflicted remuneration provisions (Divs 4 and 5 of Pt 7.7A of the Corporations Act): see paragraph 1.8 of the Explanatory Memorandum.
The best interests duty and the appropriateness of advice may be particularly relevant when providing advice to a member to move from the MySuper option to a Choice option.
We have released a number of guides to help industry comply with these requirements. Much of this guidance is relevant to providers of intra-fund advice. Regulatory guides that relate to the FOFA reforms include Regulatory Guide 175 Licensing: Financial product advisers—Conduct and disclosure (RG 175), which has been updated to include guidance on meeting the best interests duty and related obligations, RG 244 and RG 246.
In addition to the requirements described above, the FOFA reforms introduced a requirement for advice providers to ask their retail clients to opt-in, or renew, their advice agreements every two years if their clients are paying ongoing fees (opt-in requirement).
In the FOFA Information Pack released in April 2012, the Government announced that intra-fund advice will be exempt from the requirements in Pt 7.7A of the Corporations Act relating to fees (i.e. the opt-in and fee disclosure requirements): see page 14 of the FOFA Information Pack. Treasury is considering introducing a statutory exemption that will also carve out advice that may be collectively charged under s99F of the SIS Act. We may provide further guidance on this issue when the relevant legislation is settled.
What other laws continue to apply to financial product advice?
Intra-fund advice is a type of financial product advice, and as such, other relevant laws continue to apply to it, including other advice provisions under the Corporations Act.
Persons involved in the provision of personal advice must continue to satisfy the requirements in Ch 7 of the Corporations Act—for example, the obligation for an AFS licensee or its authorised representative to give the member a Statement of Advice (SOA) where applicable.
We have provided guidance on meeting your legal obligations when giving personal advice: see RG 175 for our guidance on the requirements for giving advice and SOAs and RG 244 for our guidance on giving scaled advice.
What records must I keep?
We expect you to be able to demonstrate which advice provided to members is intra-fund advice to justify how you charge for this advice directly or indirectly. If you are an AFS licensee, you must keep records on any personal financial advice that is provided, including SOAs, for seven years: see Pro Forma 209 Australian financial services licence conditions (PF 209), condition 57 and RG 175.396–RG 175.403.
What should I communicate to members?
You should consider what messages to give members to explain how you charge for intra-fund advice, as well as the limitations in the scope of this advice: see RG 244 for our guidance on how to scope and scale advice generally, and the importance of communicating clearly to members.
Intra-fund advice is designed to provide members with easy access to simple advice. However, more complex advice may require a member to incur the cost of the advice. If you offer intra-fund advice services, we expect you to have in place internal policies to manage the costs of these services and ensure they are not excessively used by any particular member to the detriment of other members: see paragraph 1.45 of the Explanatory Memorandum.
What about previous intra-fund advice requirements?
Class Order [CO 09/210] Intra-fund superannuation advice will cease to apply on 1 July 2013 when s945A of the Corporations Act ceases to apply to AFS licensees and their authorised representatives, or earlier if a licensee elects to comply with Pt 7.7A of the Corporations Act before this date.
Where can I get more information?
Go to the Government’s Stronger Super website at http://strongersuper.treasury.gov.au.
Go to ASIC’s FOFA webpage.
Contact ASIC on 1300 300 630 or by email at StrongerSuperReforms@asic.gov.au.
This is Information Sheet 168 (INFO 168). Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.