A flurry of recent moves, from a number of quarters, will have an effect on professional advisers. These actions included a clarification of some outstanding points related to the ‘sustainable superannuation’ legislation, a decision in the first prosecution by ASIC of a licensee under Future of Financial Advice (FoFA), and draft recommendations by the Productivity Commission relating to default super funds.
Two of the more contentious changes to the super rules that Treasury was considering involved non-commutable income streams and the requirement for trustees of SMSFs to obtain an actuary’s certificate when using the proportional method to claim exempt current pension income. Not unexpectedly, Treasury has dropped the idea of allowing people to commute a defined benefit pension when a member exceeded the $1.6 million pension transfer limit. The well-intentioned proposal to remove the requirement for self-managed superannuation fund (SMSF) trustees to obtain an actuary’s certificate was also dropped.
The change of mind with regard to the actuary’s certificate was more than likely prompted by the heavy lobbying done by a number of organisations, and also a realisation that in the current competitive SMSF market, the cost of an actuary’s certificate is relatively small, at just over $100.
ASIC prevails in Federal Court
In a decision handed down last week, the Federal Court found that NSG Pty Ltd had breached its best-interest obligation under FoFA. Although the licensee was involved in advising on insurance, the ramifications of the successful prosecution for all planners are far-reaching.
There had been some speculation as to how successful ASIC would be in mounting cases against licensees and advisers under the requirement to act in the best interests of their clients. With this successful prosecution, advisers who thought there was some wiggle room within their obligation to put their clients’ best interests first, have received a wake-up call.
In announcing its decision, the court listed a number of deficiencies in the licensee’s processes and procedures, including:
- the client advice process was insufficient to ensure that the client obtained all of the necessary information
- the training of advisers on legal and regulatory obligations was insufficient
- representatives weren’t routinely monitored to identify deficiencies in knowledge and skills
- there was a commission-only remuneration model that meant representatives were rewarded only by way of commissions from sales of life insurance products and superannuation rollovers.
Recommendations for default super models
The study the Productivity Commission undertook to assess the efficiency and competitiveness of the superannuation system has been completed. The commission issued a draft report on March 29, 2017, that contained a number of recommendations with regard to alternative default super fund models.
The commission recognised that many superannuation members receiving compulsory employer super contributions are disengaged from the process and, as a result of changing employers, ended up with multiple superannuation funds because of the different default funds used.
One of the recommendations of the commission is that once a member is allocated to a default product when they join the workforce, they will remain with that fund. This would result in 10 default funds being available to employers, with the funds that meet a threshold of service quality being selected based on their long-term investment returns and costs.
It is interesting to note that according to SuperRatings research, “The top 10 super funds that have produced the best long-term net investment returns over a 10-year period are all industry funds. One area of contention could be as to whether the quality of service threshold could work against some industry funds.
If the commission’s recommendations are adopted, and the 10 default funds are all industry funds, it will be interesting to see how advisers can meet the client’s best interest duty when recommending commercial superannuation funds and wrap accounts.
