FAAA: Sole purpose test guidance needed on super advice fees
The Australian Prudential Regulation Authority (APRA) needs to provide guidance around the superannuation sole purpose test to clarify the status of financial advice, particularly in the wake of the Government’s announcements around the Quality of Advice Review (QAR).
The Financial Advice Association of Australia (FAAA) has told the regulator that with the Government having flagged such substantial changes, the failure of APRA to provide guidance will leave advice decisions in the hands of superannuation fund trustees.
The FAAA said the Government had flagged 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,” it 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 told APRA that the application of the Sole Purpose Test is complex and that there existed a range of factors that influenced the payment of advice fees from superannuation funds that warrant the provision of guidance.
“We are conscious that APRA does not regulate financial advice, however APRA does regulate super funds, and thus the rules for the payment of financial advice fees from a superannuation fund does come under the jurisdiction of APRA,” the FAAA said/
“APRA has in the recent past (in consultation with ASIC) provided guidance to superannuation fund trustees with respect to oversight of the payment of advice fees. This guidance did address the Sole Purpose Test.”
It said that many things had changed since that guidance was issued and updated guidance around financial advice was now warranted.
Why would a members personal household circumstances such as debt, spouse income & age pension eligibility be discussed in isolation with a members superannuation advice ?
Aren’t these topics for consideration when first discussing with a member their superannuation wish list, like risk tolerance, time frame to retirement,what investment mix to try and achieve possible end goals along with the current economic environment?
That should be treated as what’s immediate and what needs to be discussed later, when closer to retirement.
But even that gets wrapped in future income needs and future lifestyle requirements.
The sole purpose test isn’t the major issue. Chapter 7 of the corps act needs to be completely rewritten but the Goverment is either hell bent on excluding actual advisers or so incompetent they have no ability to properly legislate what they want.