Federal Register of Legislation - Australian Government

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This instrument determines minimum requirements for the written consent that must be provided before fees are deducted from superannuation under an arrangement that is not an ongoing fee arrangement.
Administered by: Treasury
Registered 24 Mar 2021
Tabling HistoryDate
Tabled HR25-Mar-2021
Tabled Senate11-May-2021

 

Australian Securities and Investments Commission

 

Explanatory Statement

 

ASIC Superannuation (Consent to Pass on Costs of Providing Advice) Instrument 2021/126

This is the Explanatory Statement for the ASIC Superannuation (Consent to Pass on Costs of Providing Advice) Instrument 2021/126 (the Instrument).

The Explanatory Statement is approved by the Australian Securities and Investments Commission (ASIC).

Summary

1.       A trustee of a regulated superannuation fund must obtain a fund member’s written consent before directly or indirectly passing the cost of providing financial product advice in relation to the member on to their superannuation account(s) under an arrangement (a non-ongoing fee arrangement) that is not an ongoing fee arrangement.

2.       Section 99FA(2) of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) provides that ASIC may, by legislative instrument, determine requirements for the written consent.  

3.       The Instrument determines requirements for the written consent that superannuation trustees must have before passing the cost of providing financial product advice in relation to the member on to the member’s superannuation account under a non-ongoing fee arrangement.

Purpose of the instrument

4.       The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission) identified problems with individuals being charged for financial advice services that had not been provided (known as ‘fees for no service’). The Royal Commission identified that the invisibility of the charges made were a contributing element to the charging of fees for no service and raised concerns about advice fee deductions from superannuation.

5.       In light of these problems, the Royal Commission made the following recommendation to provide further protection against future fees for no service being deducted from superannuation (Recommendation 3.3):

Deduction of any advice fee (other than for intra fund advice) from superannuation accounts other than MySuper accounts should be prohibited unless the requirements about annual renewal, prior written identification of service and provision of the client’s express written authority set out in Recommendation 2.1 in connection with ongoing fee arrangements are met.

6.       In line with Recommendation 3.3, Schedule 3 of the Financial Sector Reform (Hayne Royal Commission Response No. 2) Act 2021 (the Amending Act) amends the SIS Act to require that superannuation trustees must obtain a member’s written consent before passing the cost of providing financial product advice in relation to the member on to their superannuation account under a non-ongoing fee arrangement (s99FA(1)(d) of the SIS Act).

7.       Non-ongoing fee arrangements are not defined in the SIS Act nor the Corporations Act 2001. Paragraph 99FA(1)(d) of the SIS Act covers arrangements that are not ‘ongoing fee arrangements’ within section 962A of the Corporations Act 2001. According to paragraph 3.40 of the Explanatory Memorandum to the originating Bill for the Amending Act, a non-ongoing fee arrangement is any arrangement that relates to a particular service provided to the member on a one-off basis or over a period of up to 12 months.

8.       The amendments also provide that ASIC may determine requirements for the written consent (s99FA(2) of the SIS Act). The Instrument determines the requirements for the written consent that superannuation trustees must have before they pass on the cost of providing financial product advice in relation to a member to the member under a non-ongoing fee arrangement.  

9.       Provided the requirements specified in the Instrument are met, those preparing the written consent have the flexibility to develop the consent in a way that is compatible with their existing systems.

10.     The requirements specified in the Instrument are designed to ensure that, consistent with the intent of Recommendation 3.3, members have greater visibility of the costs payable under a non-ongoing fee arrangement. In addition, members will receive the opportunity to make better informed decisions about the value of the advice they are receiving and paying for out of their superannuation account(s).

Consultation

11.     ASIC released Consultation Paper 329 Implementing the Royal Commission recommendations: Advice fee consents and independence disclosure (CP 329) on 10 March 2020, seeking feedback on ASIC’s proposed approach to implementing aspects of law reform arising from the Royal Commission Recommendations 2.1, 2.2 and 3.3 relating to advice fee consents and independence. CP 329 was open for submissions for a period of four weeks. Submissions were also accepted after this time due to the impacts of the COVID‑19 pandemic. 

12.     ASIC Report 687 Response to submissions on CP 329 Implementing the Royal Commission recommendations: Advice fee consents and independence disclosure (Report 687) sets out the key issues that arose out of the submissions received on CP 329 and ASIC’s response to those issues.

13.     The Office of Best Practice Regulation has confirmed that the Government has undertaken a process equivalent to a Regulation Impact Statement in relation to the implementation of the Royal Commission recommendations, which also covers implementation by ASIC of recommendation 3.3 in the Instrument.

Operation of the instrument

14.     For a written consent to be valid for the purposes of meeting the obligations in s99FA(1) of the Act, it must meet any requirements set by ASIC in a legislative instrument (s 99FA(1)(d)(ii)).

Part 1 – Preliminary

15.     Section 2 of the Instrument specifies that the Instrument commences on the later of 1 July 2021 and the day after the Instrument is registered on the Federal Register of Legislation.       

16.     Section 3 of the Instrument provides that it is made under subsection 99FA(2) of the SIS Act. Section 99FA of the SIS Act has been enacted and will come into operation on 1 July 2021.  Even though the subsection that confers power on ASIC to make the Instrument has not yet come into operation, ASIC can make the instrument as if it had come into operation in reliance on subsection 4(2) of the Acts Interpretation Act 1901.

17.     Section 4 defines key terms in the Instrument, including: ‘financial product advice’ and ‘ongoing fee arrangement’.

 

Part 2 – Determination

18.     Section 5 of the Instrument specifies the requirements for the written consent that can be given by a regulated superannuation fund member to permit the deduction of the cost of providing financial product advice in relation to the member under a non-ongoing fee arrangement.

19.     A written consent is only effective if signed by the member, or by the member otherwise agreeing in writing (including electronically) to the terms of a document seeking consent which complies with section 5 of the Instrument. For example, the written consent is effective if the member provides their electronic signature to a document that complies with section 5 of the Instrument.

20.     The Instrument specifies the information that must be included in the written consent. The information must be worded and presented in a clear, concise and effective manner.

21.     The written consent must specify the name of the member who holds the account with the regulated superannuation fund from which advice fees will be deducted under the non-ongoing fee arrangement.

 

22.     The written consent must include the name and contact details of the fund. As a minimum the consent document should include the phone number and email address of the fund.

 

23.     The written consent must include the name and contact details of the provider of the financial product advice. The provider may be an external financial adviser or a representative of the fund.

 

24.     The written consent must explain why the fund is seeking the member’s consent. This is to ensure that the purpose of the written consent is clear to the member. Only a brief explanation is required. For example, the written consent could state ‘Your consent is being sought to deduct advice fees from your superannuation.’ The heading for the consent document can also assist in providing this explanation (e.g. a heading of ‘Advice Fee Deduction Authority’).

 

25.     The written consent must specify how long the member’s consent to the non-ongoing fee deduction will last. This should explain the time period for when the cost will be passed on, including an end date after which no fees will be deducted. Consistent with the meaning of a non-ongoing fee arrangement, the end date for the service provided under the non-ongoing fee arrangement should be less than 12 months from the date of consent.

 

26.     For example, the written consent could include the following statements (where relevant):

 

(a)     ‘An advice fee of $1,000 (including GST) will be deducted from your superannuation for the advice provided within 30 days i.e. by 31 October 2021 if you sign this consent’.

 

(b)     Advice fees of $200 (including GST) will be deducted from your superannuation on the 25th of each month until 25 May 2022 for the advice provided if you sign this consent.’

 

27.     The written consent must provide information about the services the member will be entitled to receive under the non-ongoing fee arrangement. This should explain the purpose(s) for which the cost is passed on. Provided that the consent continues to be worded and presented in a clear, concise and effective manner this requirement may be satisfied by attaching information about the advice provided.

 

28.     Sub-paragraph 5(3)(g)(i) of the Instrument requires, where applicable, that the written consent must include a statement explaining that the cost of providing the non-ongoing financial product advice is passed on to the member by way of deducting fees from the member’s superannuation interest. The statement must also include identifying details of the member’s superannuation account(s) that the cost will be paid from (e.g. account name and number).

 

29.     Sub-paragraph 5(3)(g)(ii) of the Instrument requires, where the cost is not to be passed on by way of fee deduction, that the written consent must include an explanation of how the cost of providing the advice will be passed on to the member and identifying details of the member’s superannuation account(s). For example, the cost may be passed on by increased insurance premiums, reduced tax benefit or reduced eligibility for separate advice or other concession. The written consent must also include the amount of the cost or a reasonable estimate of the amount and an explanation of the method used to work out the estimate: sub-paragraph 5(3)(h)(ii).

 

30.     Sub-paragraph 5(3)(h)(i) of the Instrument requires, where the cost is to be passed on by fee deduction, that the written consent must specify the amount of the fee(s) to be deducted from the member’s superannuation account. Where the amount of the fee(s) cannot be determined, the written consent must include a reasonable estimate of the amount and an explanation of the method used to work out the estimate. For example, the amount of the fee(s) may not be known as it will depend on amounts the member elects to hold in each investment option during the non-ongoing fee arrangement period.

 

31.     A reasonable estimate should be based on all of the relevant information available at the time of the estimate and reflect the most accurate account of the member’s position at that time. Those preparing the consent should factor in information known to them at the time of providing the estimate, if relevant, such as employer contributions that are expected to be made throughout the year to the member’s superannuation account, additional contributions that may be made by the member based on the advice provided and any known large withdrawals or fees that are anticipated.

 

32.     The written consent must include a statement to the effect that the member can withdraw their consent at any time before the cost is passed on to the member by contacting the fund. Contact details of the fund where the member may withdraw their consent must also be provided in the written consent: see paragraph 22 above.

33.     The written consent must state the date indicating when the consent was given by the member.

Incorporation by reference

34.     The Instrument does not incorporate any matter by reference for the purposes of section 14 of the Legislation Act 2003.

Legislative authority

35.     The Instrument is made under subsection 99FA(2) of the SIS Act.


Statement of Compatibility with Human Rights 

36.     The Explanatory Statement for a disallowable legislative instrument must contain a Statement of Compatibility with Human Rights under subsection 9(1) of the Human Rights (Parliamentary Scrutiny) Act 2011. A Statement of Compatibility with Human Rights is in the Attachment.

37.     Instruments (not being regulations) relating to superannuation are not disallowable legislative instruments: see regulation 9 of the Legislation (Exemptions and Other Matters) Regulation 2015.

38.     ASIC considers there is a reasonable basis for the view that the Instrument is properly described as an instrument relating to superannuation. Nonetheless, ASIC has decided to prepare a Statement of Compatibility with Human Rights.


Attachment

Statement of Compatibility with Human Rights

 

This Statement of Compatibility with Human Rights is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.   

ASIC Superannuation (Consent to Pass on Costs of Providing Advice) Instrument 2021/126 (the Instrument)

Overview

1.       The Instrument specifies requirements for the written consent that superannuation trustees must have under s99FA(1) of the Superannuation Industry (Supervision) Act 1993 (the SIS Act) before passing on the cost of providing financial  product advice in relation to a member to the member’s superannuation account under a non-ongoing fee arrangement.

 

2.       The Instrument is made pursuant to subsection 99FA(2) of the SIS Act. Subsection 99FA(2) provides that ASIC may, by legislative instrument, specify requirements for the written consent to the deduction of costs of providing financial advice in relation to a member that must be provided before those costs are passed on to the member under a non-ongoing fee arrangement.  

 

3.       The written consent requirements in the Instrument are designed to ensure that, consistent with the intent of Recommendation 3.3 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, superannuation members have greater visibility of the fees deducted from their superannuation accounts under a non-ongoing fee arrangement. In addition, members will receive the opportunity to make better informed decisions about the value of the advice they are receiving and paying out of their superannuation account(s).

Assessment of human rights implications

4.       The Instrument does not engage any of the applicable rights or freedoms.

Conclusion

5.       The Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.