Clockwise from top left: Stephen Jones, Alan Kirkland, Andrew Bragg and Michelle Levy.

The corporate regulator’s position on advice fee deductions has emerged as an elephant in the room as the government’s proposed legislation acting on Stream One of the Quality of Advice Review response shatters the veneer of industry consensus over reform.

The government’s Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill, tabled in Parliament in March, unexpectedly altered the provisions around advice fee deductions from superannuation funds.

Going well beyond the QAR’s seventh recommendation that “superannuation trustees should be able to pay a fee from a member’s superannuation account to an adviser for personal advice provided to the member about the member’s interest in the fund”, the bill seemingly imposes new requirements on trustees to approve the reduction of advice payments and check every piece of advice, while external advisers may need to provide proof that the advice in question is “personal”, among other obligations.

The approach backs consumer groups although falls short of their longstanding position to ban advice fee deductions due to the risk of pre-Hayne royal commission-style fees for no service conduct. In a submission to the inquiry around the bill, Super Consumers Australia and Choice reminded government that “on principle” they do not support the deduction of advice fees from superannuation accounts.

“People may be more likely to value advice if they have to actively pay for it from their own pocket, rather than have fees deducted from their super account,” they argued, adding that if fee deductions from super must be allowed then the additional provisions are helpful in “clarifying” the existing obligations under the law.

But representatives of the advice profession are reading the bill somewhat differently, arguing it adds additional obligations on trustees beyond the status quo, which would create an additional red tape impost on external advisers and counter-productively push up the cost of advice. It could also result in frayed tensions between super funds and advisers and create fresh conflicts of interest in the industry, the Joint Licensees Group led by WT Financial Group CEO Keith Cullen argued in a submission to the bill inquiry.

Both the Financial Advice Association and Financial Services Council have called for explicit changes to the provisions in the bill to ensure the regulatory burden on trustees and/or advisers does not increase, which is the opposite of what QAR lead Michelle Levy sought to achieve.

The FSC has given Treasury benefit of the doubt, suggesting the fee deduction provisions could just be another bureaucratic bungle – “mistakes in drafting are easy to make,” its submission argues, generously – while adding that the additional red tape emanating from the fee deduction provisions are likely an “unintended consequence”.

The suggestion is plausible, particularly given a number of admitted drafting errors elsewhere on the DBFO bill. But multiple stakeholders in the policy process suspect the changes in wording between the existing law and DBFO bill were privately recommended or at least influenced by the corporate regulator.

Some hypothesise that the appointment of former Choice CEO and longtime fee deduction sceptic Alan Kirkland to the role of ASIC Commissioner may have bolstered the regulator’s resolve on the contentious issue.

ASIC would not comment on the speculation that it recommended or influenced the DBFO fee deduction provisions, but a spokesperson for the regulator confirms it has provided advice throughout the QAR process.

“ASIC supports the government’s objective of increased access to affordable financial advice,” the spokesperson tells Professional Planner. “As is usual practice, ASIC engaged with both Treasury and the Quality of Advice Review and continues to support Treasury as they develop the government’s response to the Quality of Advice Review.”

While it is common for regulators as an apparatus of the public service to advise ministers, their staff and other government agencies, some critics question whether this process undermines their regular claim that they only enforce, and not create, laws.

The spokesperson also clarified that, in ASIC’s view, “neither the existing law nor the proposed provisions require superannuation trustees to check every statement of advice” which Kirkland also recently re-iterated to advisers, despite a report coming out from the regulator a week later arguing funds were not doing enough checks under current rules.

The spokesperson adds: “ASIC expects trustees to design appropriate controls and assurances that will help them meet their regulatory obligations. Effective oversight of advice fee charges is crucial to legal compliance and helps to protect superannuation members from real financial harm over the long-term, such as from balance erosion. It also gives confidence to members in seeking advice that robust processes and systems within their funds help support it.”