In a submission to the Senate economics references committee inquiry into improving consumer experiences, choice, and outcomes in Australia’s retirement system, Quality of Advice Review (QAR) lead Michelle Levy said that super funds could be constrained by their role as trustees when it comes to providing advice.
“Superannuation funds are not legal entities – they are trusts. A superannuation fund cannot do anything. Only their trustees can,” Levy said.
“This is a very important point which is, I think, lost when we refer to superannuation funds in the same way that we refer to banks and insurers. A trust is a very good vehicle for investing and keeping safe custody of other people’s money – it is not, I think, a very good vehicle for conducting a financial services business and that is what trustees increasingly are being asked to do and are increasingly doing.”
The reality of a trustee providing personal advice, she said, is that it must hold an Australian Financial Services licence with an authorisation to provide personal advice in addition to its RSE licence.
“In providing that advice, the trustee has duties under the Corporations Act to the individual member which are separate from (and sometimes in conflict with) the duties it has to members under the SIS Act,” she said.
“[Financial services royal commissioner] Hayne recommended that a trustee not be able to have a duty to act in the interests of another person, other than a duty that arises in the course of performing the RSE licensee’s duties, or exercising the RSE licensee’s powers, as a trustee of a registrable superannuation entity. The restriction is subject to an exception for providing personal advice.”
This exception, Levy explained, suggests that a trustee does not act as trustee of the fund when it provides personal advice, including to a member.
“I do not think this is a fanciful proposition,” she said.
“But it has not been considered by a court and I do not even think it has been considered closely by trustees or regulators.
“Given the retirement income covenant requires a trustee to provide help and guidance to its members, given that the government thinks that should include personal advice and given that many trustees want to and do give their members personal advice as they enter retirement, this is an important question to resolve.”
If trustees are, in fact, acting as trustees during the provision of personal advice, Levy said they can pay the costs of providing that advice from the fund, regardless of whether fees are paid by members.
“It also means that other liabilities trustees incur in connection with providing personal advice to members can be paid from the fund,” she said.
Levy explained that this again arises when super fund members make complaints to the Australian Financial Complaints Authority (AFCA) about the advice the trustee has given.
“I suspect (without knowing) that the costs of resolving those complaints, including compensation where that is required, are met from funds on the basis of the trustee’s belief that it is acting as trustee and is entitled to rely on its right of indemnity,” she said.
“There have also been large-scale remediations undertaken by trustees of retail funds, but to my knowledge, these costs have not been met from the funds. This may not be an option for funds which do not have shareholders who are able to assume a trustee’s liabilities. In that case, compensation might have to be paid from the fund or the losses will go uncompensated.”
The issue has not been considered by a court, Levy added.
“In my view, the question of when a trustee is acting as trustee and when it is entitled to be indemnified from fund assets should be clarified in legislation, but even the policy question is difficult – should trustees be indemnified from fund assets if they provide poor or unlawful advice?” she said.
In addition to the concerns around the provision of personal advice, she said that as things stand, trustees are also “poorly equipped to provide help and guidance to retirees”.
“A key point is that the more that is required of trustees, the more likely it is that they will make mistakes and incur liabilities. Again, this is not because they are incompetent, but rather because it follows from operating a complex business which is no longer only about investing assets,” Levy said.
“The scale of those liabilities also increases with the scale of the funds. And to return to my point earlier, these risks are ultimately borne by the members because superannuation funds are trusts and because their trustees are not financial institutions with significant capital and access to shareholder funds.”
Rather disappointingly, not a single comment understood what Michelle was getting at. This goes to shows the calibre of individuals in this industry or profession
Michelle’s comment was about providing legislative certainity to trustee on what can members money be used for. Especially when it comes to liability arising from compliance issues. Recent guidance from APRA on use of member reserves for preventing compliance breaches is the background context. So the question is if member reserves can be used for strengthening risk functions can it also be used for advice remediations ? If it can’t be how can industry funds pay for advice remediations, especially on a environment where they are asked to provide more advice to more member, which increases the potential liability quite significantly.
Clearly breaches will and have been funded from reserves, look at Aware (FSS) fees for no service from their State Super acquisition. I think the comments are, understandably, more related to broader issues and other problematic aspects and concern for the profession. Minutae around how breaches are treated or funded, is secondary to whether “qualified advisers” should be allowed to likely increase compliance breaches in the first place. On the topic of funding breaches from (un)qualified advisers, I believe this is also peripheral at best to first knowing and understanding how the ASIC Levy and CSOLR will be affected for fully fledged (actual) financial advisers. Another area not mentioned in QoAR, or subsequently from Jones or Treasury.
What is fanciful is that the Hayne RC couldn’t comprehend that a vertically integrated tied agency Super Fund Salesperson isn’t biased or conflicted, particularly when receiving production bonuses (as some do). The hypocrisy here is breathtaking.
Their argument is that the RC was into banking, never advice or super.
It was a complete joke as Hayne had no idea, and picked up a nice cheque while leaving advisers in a bigger mess.
Blame Jane Hume for setting up QAR in the first place. She really is a mole for Industry Super inside the Liberal party.
And Frydenberg for the uniquely Australian unfair Adviser Levy. Nowhere else in the world are advisers subjected to such rubbish and the QAR simply throws advice under the bus as a profession to be sales/customer service for product providers. Utter rot
If Levy had stuck to her brief, she could have transformed the advice profession by reducing red-tape and unlocking the enormous potential of the 16K advisers, who could easily service the demand if unshackled from ridiculous levels of red-tape unseen in other jurisdictions.
Instead she prioritised her institutional customers, seeking to given them a free kick at the expense of consumers and advisers. Now the ALP are twisting her recommendations to give a free-kick to their political donors instead. So I find her comments somewhat amusing.
It’s just a pity our professional bodies were too stupid or conflicted to call out the lie that all of this nonsense is based on.
Very well articulated! Thanks! This is a great summary of the whole conflict of Super Funds providing advice. They cannot, with any level of consistency remain impartial and act in a client’s best interests at the same time as they represent the best interests of their Fund. Nor can they reasonably, do the two jobs independently; yet simultaneously.
Even if Funds set up, separate, aligned businesses to handle the Advice, whilst this allows them to be regulated as Advice businesses instead of funds, it doesn’t fix that they’re vertically integrated and tied to their master. This model was proven as a huge fail by Big Banking.
Affordable advice isn’t hiding under the skirts of Big Funds, anymore than it was hiding under the skirts of Big Banking. It’s not hiding in wait for more regulation either. It lies in simpler legislation and better enforcement of the laws that were already in existence before ASIC fell asleep at the wheel while dining with Big Banking and “negotiating” their enforcement preferences.
Simpler regulation and move the majority ASIC’s cost (not all – I can afford car rego, but I can’t afford to build or maintain a road), to the investment vehicle manufacturers. Get it away from Advisers and the cost moves to the investor profits before they’re a profit and away from individual Ma’s & Pa’s needing help navigating retirement planning. Do that and you’ll see much more affordable advice provided by qualified and experience people who care for their client first. In my opinion, you’ll also a better attitude from Big Funds and likely improve ASIC’s funding as well.
Obviously the biggest conflict is that the advice provided by the super fund can in no way meet BID as the advice is limited by the link to the super fund PRODUCT. It becomes product advice rather than financial planning advice. I mean seriously, does anyone anticipate someone like Australian Retirement Trust advising a client to move their super to a better performing fund? I don’t think so…….
Then there is the subrogation of responsibility if a client listens to a super fund AND an external adviser, gets their wires crossed and makes a sub-optimal choice. The finger pointing exercise in any claim by the client would be rampant.
Super Funds should just stick to being trustees of their clients’ funds; pretending to give unbiased, BID advice to retail clients is just a nonsense and another royal commission in the making.
Didnt Levy said that she encourages super funds and banks to give advice in the QAR? Sounds as though this article states the superfunds and banks will make mistakes again which will ultimately lead to another royal commission because “these risks are ultimately borne by the members because superannuation funds are trusts and because their trustees are not financial institutions with significant capital and access to shareholder funds.”
hilarious as it seems shes fighting her own arguments which everyone said it leads to the same thing happening again – another royal commission.
At last, some useful technical information from Ms Levy……
Why the concern?
Industry funds have a clear run to do whatever they like.
This proposition is actively supported by the govt and the regulators.
Why waste time thinking anything is going to change for the better.
This govt wants advisers eliminated from the picture so don’t waste time and effort in these moronic enquiries.
The most important point of all is that super funds have an INCENTIVE to provide bad advice that is not in the member’s interest, where that advice will lead to greater FUM for the fund.
This has been happening illegally for years, with many funds recommending switches into their fund that cause the member to lose valuable benefits from their previous fund, and recommending retention of retirement savings in the fund rather than paying off debt.
Jones’ QAR will just legalise the bad advice provided by conflicted super funds, and make many more consumers worse off.
Super funds can’t do basic admin so appropriate advice is beyond improbable, just look at the current scaled rubbish being produced. Call it what it is, sales. Sales that is often factually incorrect and sub optimal at best. Sales which will decrease further in quality when education, experience and ethical standards are dropped
Yep, just as not everyone wants to eat at McDonalds every night, not everyone is going to want to wait on hold for ages for advice from someone with limited knowledge and limited English who they’ll never be able to speak to again
Take a look at some the retiree facebook pages, you see a huge amount of complaints about these industry super funds no processing their withdrawals in a timely manner or not at all because of their poor admin. How can they be expected to handle advice!
Of course union super funds delay withdrawals. How dare those members try and take money away from the unions!