The regulators have given limited relief to superannuation and managed fund trustees to allow them to assist members with managing their investments.
Superannuation advice relief
With the Government's proposal to simplify intra-fund advice still in the consultation phase, ASIC has agreed to provide relief for superannuation trustees wanting to give simple advice to members making switching enquiries. ASIC indicated in a letter to industry groups on 7 November 2008 that it is prepared to provide relief from strict compliance with the licensing and advice obligations under Chapter 7 of the Corporations Act 2001 (Act) on a case-by-case basis where the information provided to members relates to:
- the differences between a bank guaranteed deposit and a long term investment in a portfolio of market-linked investments;
- the implications of switching investment options within a superannuation fund;
- the implications of transferring benefits from one fund to another, including the potential loss of insurance benefits and the crystallisation of investment losses;
- the implications of withdrawing money from the fund, including the potential loss of insurance benefits, crystallisation of investment losses and taxation consequences;
- that superannuation is a long term investment; and
- reasonable statements concerning the relative return and volatility characteristics of different kinds of investments.
However, the relief is conditional upon the trustee not recommending that a fund member acquire or dispose of an asset or change their investment option or contribution level. The fund trustee must also disclose that it is not licensed to provide financial advice (if that is the case) and that it may have an interest in the member maintaining their current investment options and retaining the member's investment in the fund. The trustee must also give a 'general advice' warning.
Importantly, trustees wishing to avail themselves of this relief must apply to ASIC to be covered by the 'no action' position. If the relief is granted, the trustee is required to keep adequate records of statements made to members.
ASIC relief - withdrawal rules
ASIC also announced on 31 October 2008 that it will consider applications for relief from the withdrawal rules set out in Part 5C.6 of the Act in relation to illiquid mortgage funds on a case-by-case basis where hardship grounds are made out by investors.
This will allow the responsible entities of mortgage funds to consider individual requests without having to make a withdrawal request that complies with the Corporations Act requirements (where a registered scheme is illiquid), and will be able to discriminate between members without breaching the 'member fairness' obligations. However, the ASIC release suggests that the relief is currently only available to individuals who invest in an illiquid fund directly, not to individuals investing through platforms like managed funds or superannuation funds. It is also unclear as to whether such relief consideration will be extended to other illiquid funds such as unlisted property trusts.
APRA portability relief
APRA has been contacting superannuation fund trustees to remind them that they can apply to APRA for portability relief from their obligation to rollover or transfer amounts within 30 days in accordance with regulation 6.34 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). Regulation 6.37(2) of the SIS Regulations requires a portability relief application to include information relating to the financial position of the fund and the effect of a rollover or transfer on the financial position of the fund, and the interests of other fund members.
There is limited relief from complying with the 30 day period already available in SIS Regulations 6.34(6) and (7) if the member invested in the fund prior to 1 July 2007 and any part of the member's interest in the fund was an illiquid investment immediately before 1 July 2007, or the member makes an investment choice on or after 1 July 2007 and the fund trustee has adequately disclosed that the investment is an illiquid investment. However, regulations 6.34(6) and 6.34(7) do not address the situation where a member invests in assets which are liquid at the time of the investment, but the investment subsequently becomes illiquid, which will generally be the case in the current market.
Trustees may also be able to rely on section 155 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), which relieves trustees from redeeming an interest where the trustee is unable to work out a redemption price that would be fair and reasonable to all members.
Investment strategy
Trustees are required to formulate and give effect to an investment strategy under section 52(2)(f)(iii) of the SIS Act that considers 'the liquidity of the entity's investments having regard to its expected cash flow requirements'. In light of the increasing illiquidity of underlying investments, trustees should consider reviewing their investment strategy and ongoing liquidity requirements and assess whether new members should be advised of the illiquidity of any of the investment options within the fund, particularly where reserves have not been maintained.