Nick Sherry took up the position of Minister for Superannuation and Corporate Law in December 2007 with a clear intention to do something about the cost of superannuation advice, particularly simple advice about a member's interest in their fund ('intra-fund' advice). A Financial Services Working Group was put together to consider the issue of intra-fund advice and it produced a consultation paper in May 2008 which contained various proposals to reduce the cost of simple advice within superannuation.
ASIC has now released two documents that advance the work done by the Working Group, Regulatory Guide 200: Advice to Super Fund Members (RG 200), which sets out ASIC's views about certain issues relating to advice within superannuation and Class Order [CO 09/210], which gives fund trustees conditional relief from the 'suitability rule' in section 945A of the Corporations Act 2001 (the Act) which requires a 'reasonable basis' for personal advice given to members.
Information v advice
A consistent theme in the submissions by fund trustees to the Working Group was confusion surrounding the distinction between simple information and advice, and particularly the distinction between general and personal advice. The major concern was two-fold:
- the possible broad application of section 766B(3)(b) of the Act could deem a trustee to be giving a member personal advice because the trustee holds information about the member's financial circumstances. This could create an expectation in the member that the trustee is considering that information when giving advice; and
- if a trustee is deemed to be giving personal advice because of section 766B(3)(b), when it thought it was only giving the member general advice, it may breach (amongst other provisions) the 'suitability rule' in section 945A of the Act because it hasn't made inquiries about the member's circumstances outside the fund.
ASIC guidance: Regulatory Guide 200
ASIC has attempted in RG 200 to give guidance as to the distinction between factual information and general and personal advice, using examples of typical communications between a trustee and its members through a call centre or by email.
It is generally clear when the trustee is giving only factual information and the examples of this in RG 200 sound like the representative of the trustee is simply reading material out of the PDS without giving any analysis.
However, members will generally want some analysis or recommendation about the product and that is where the distinction between general and personal advice can become blurred. The distinction is particularly important for those trustees that do not have an Australian Financial Services Licence (AFSL) that allows them to give advice (opting instead to rely on licensing exemptions which allow the giving of limited general advice).
Importantly, ASIC has indicated in RG 200 that it will not consider advice given by the trustee to be personal advice simply because the trustee has some information about the member's circumstances. However, it doesn't give any guidance on when it would be reasonable for a member to expect the trustee to have considered the member's personal circumstances when giving the advice, triggering the deeming rule in section 766B(3)(b).
In fairness to ASIC, that's a more difficult issue, and ASIC does appear to suggest in RG 200 that the trustee can manage the member's expectations by making it clear to the member that they are not being given personal advice. However, some doubt still remains about the operation of section 766B(3)(b), given the Working Group said in the consultation paper that 'many consumers would expect that specific advice from an expert source is advice they can (and would) rely on, despite any disclaimer'. That doubt is likely to remain until the law is amended or clarified by the courts.
Class Order [CO 09/210]: Suitability rule
The value of the Class Order relief is that, where trustees understand and accept that they are giving personal advice, they will not be bound to make inquiries of the member's circumstances outside the fund or to comply with the suitability rule, provided they meet the conditions of the relief and remain within the scope of permitted advice.
This raises the issue of what protection there is for the member in circumstances where the trustee's representative giving the advice does not need to comply with the suitability rule. ASIC appears to suggest in both RG 200 and the class order that the member has the inherent protection of the fiduciary relationship between trustee and member (such as the duty to avoid conflicts), as well as the protections under superannuation law (the best interests covenant in the Superannuation Industry (Supervision) Act 1993 (SIS Act)). Trustees should ensure that any advice given is at least reasonable and well-considered, taking into account the information that the trustee has about the member ie age, account balance, contributions history, insurance, etc.
What advice can be provided?
The Class Order enables trustees to provide personal advice on limited issues, subject to the conditions set out below.
- investment options within the fund
- contributions
- life insurance within the fund
- early access to benefits in times of financial hardship
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- member-directed investment strategies
- changing funds ("switching or consolidating")
- complex retirement planning
- insurance outside the fund
- investments outside the fund
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Conditions for relief
Trustees may provide personal advice to a member under the class order if:
- the trustee holds an AFSL which authorises the trustee to provide personal advice;
the advice is in relation to the member's existing interest or eligible insurance in the fund;
- the fund is not a self managed superannuation fund; and
the advice does not relate to:
investments that are not financial products (section 765A(1) of the Act);
an investment strategy requiring the trustee to give disclosure under section 1012IA or Part 7.9 of the Act;
a pension payable to the member by the trustee (regulation 7.1.04E(1) of the Corporations Regulations 2001); or
- the issue of a new interest in the fund.
In addition, a trustee must notify the member in writing:
- before or when the advice is given that the advice is restricted to the member's existing interest in the fund;
- as soon as possible after the advice is given that the trustee has relied on the Class Order and therefore, the advice given is limited to the member's interest in the fund; and
- of any increases in fees, charges, insurance premiums and remuneration or benefits payable regarding the member's interest in the fund (in monetary amounts) as a result of acting on the advice.
Considerations for trustees
For trustees wanting to provide members with access to personal advice about their interest in the fund, the Class Order relief is helpful as it cuts out some of the concerns about the application of the 'suitability rule'. However, those trustees will need to be conscious of other compliance requirements under the Act that remain in place (providing members with a Statement of Advice), as well as complying with their obligations under the SIS Act, general law, and industry standards.
For trustees that do not hold AFSLs that allow them to give personal advice, the material released by ASIC has not substantially clarified the confusion around when general advice becomes personal advice. They should continue to exercise caution about how they go about communicating with members in relation to their interest in the fund.