In July 2021, requirements were introduced regarding the deduction of advice fees from superannuation accounts – these are widely known as the Sole Purpose Test. In June 2021, ASIC and APRA sent letters to the trustees of superannuation funds to inform them of the new consent requirements and to prompt them to consider the appropriateness of advice fee payment requests from superannuation accounts.
What the letter required
To comply with the new member consent rules and to address the purpose for advice fees being paid, ASIC and APRA recommended trustees adopt the following practices:
|Check the adviser’s credentials
|It was recommended that trustees check the identity and credentials of financial advisers who provide services to fund members through ASIC’s FAR.
|Receive a copy of the fee consent
|Trustees can only deduct advice fees from a members account if they sight consent from the member
|Assurance of services
|Trustees should have processes in place to be assured that services are received, payment is consistent with the sole purpose test, and the fees are appropriate. This may include requesting samples of SoA’s, or imposing fee caps to ensure fees are meet the sole purpose test and do not erode the members account balance.
|Identify systemic issues
|Trustee are expected to be aware of fee complaints against advisers so that they can determine if it is appropriate to continue to release fees if there is a systemic issue.
The letters made it clear that the trustee is not required to check every piece of advice, however they need to ensure that they are mindful that deductions from member accounts for advice fees must be appropriate.
The Sole Purpose Test
In summary, the sole purpose test requires that superannuation funds be maintained for the ‘sole purpose’ of providing benefits to members upon retirement or death (or occasionally for certain ancillary purposes such as disability or hardship). This means that advice fees deducted from a members superannuation account can only be used for financial advice relating to superannuation, not for general investment advice. If the advice covers a broad range of topics, including superannuation, then only a portion of the fees should be deducted from superannuation representing the portion of the advice applicable to superannuation investment. Advice pertaining to retirement planning or wealth accumulation should not be paid for through a members superannuation account unless the advice is directly connected to the members superannuation benefit.
NOTE: if the advice is for more than one party, the fees taken from superannuation must be apportioned to both parties representative of the advice provided in order to meet the sole purpose test.
The sole purpose test also applies to SMSF trustees, and the ATO will be monitoring them. If the ATO deems any transaction or decision provides significant, non-incidental or indirect financial benefit to the fund members, trustee, or any related party before the fund member has met a condition of release, the trustee would be in breach of the sole purpose test.
The fund trustee can pass the sole purpose test if they can determine the decision or transaction will provide retirement benefit for SMSF members. If the outcome would offer immediate benefit to SMSF members or a related party, the trustee should avoid making the investment or payment.
For More Information
ASIC’s Changes to RG78
In April, ASIC published a document outlining the changes to Regulatory Guide 78 Breach Reporting by AFS licensees and credit licensees. This document outlines the first phase of changes that ASIC is implementing under the reportable situations program. In the section below we will examine some key changes and how they relate to the information that needs to be gathered when reporting a breach or incident through the ASIC portal.
|Grouping multiple reportable situations into one report
|Reportable situations may be grouped and reported as a single report if both below requirements are met:
1. There is similar, related, or identical conduct, and
2. The conduct has the same root cause
ASIC provides examples in Table 9 of RG78 to aid the decision-making process.
|ASIC has amended the wording of the question about first becoming aware of the breach or incident to a more direct question:
“Specify the date when the potential breach, serious fraud and/or gross negligence was first discovered”
|Selecting categories for ‘root cause’ or ‘trigger’ questions
|ASIC has provided the following guidance:
Root cause – when selecting the most appropriate root cause from the provided options, you can select multiple applicable options. If the options selected require further explanation, use the ‘Describe the reportable situation’ free text field to expand further. Table 11 in RG78 provides a description of each root cause category provided.
Trigger options – when indicating what triggered the investigation, select the option the corresponds with how you first became aware of the matter or how the investigation first started. Table 12 in RG78 provides a description of each investigation trigger category provided.
|Completing the “Describe the reportable situation” field.
|ASIC has provided guidance suggesting licensees consider:
· the impact, nature, and complexity of the breach
· whether the report would benefit from explanation beyond what is capture through structured fields
Information relating the following areas should be included:
i. details about what happened
ii. an explanation of how the reportable situation is a breach of your obligations, serious fraud, or gross negligence
iii. details of how the reportable situation was identified
iv. details about why the reportable situation occurred (including root cause)
v. details about impact to clients and/or licensee (including non-financial impacts)
vi. any additional information about remediation or rectification that is not covered in standard fields
vii. steps that have been taken to address the underlying root cause to ensure another incident doesn’t occur
viii. any other context that is not otherwise provided in the structured fields
|Updates to reported breaches
|ASIC expects that licensees will use the ASIC Regulatory Portal’s update functionality to inform ASIC:
· at least every 6 months on the status or progress of the breach, or
· of any material changes to your understanding of the nature, impact, or extent of the reportable situation, or
· if you have completed your investigation, rectified the root cause, and your remediation process
|Withdrawing or correcting a submitted report
|Once a report is submitted, there are limited circumstances in which it may be withdrawn or corrected. These limitations are intentional as ASIC expects complete and accurate reports to be lodged.
For More Information
On 23rd April, the Attorney-General announced public consultation on the proposed reforms to the AML/CTF regime. These reforms include extending the current legislation to include second tier high-risk entities such as lawyers, accountants, trust and company service providers, real estate agents, and dealers in precious stones and metals.
The purpose of the proposed reforms is to bring the current regime into line with international standards and best practice, reduce the complexity and regulatory burden on industry, keep the regime fit for purpose, and strengthen Australian businesses and sectors against exploitation by organised crime.
The Attorney-General’s Department (AGD) has released two consultation papers. You can access them via the link below if you would like to read them or make a submission before 16 June 2023. The feedback received through this consultation process will inform future reform papers and a second release is expected later in 2023.
For More Information
GRC Essentials can help
If you require any assistance, we can offer training for your personnel or a review of your compliance documents. Please don’t hesitate to contact us if you have any questions or if we can help you with any of your compliance matters.
NOTE: if you do not wish to receive further technical updates from GRC Essentials Pty Ltd, please respond to this email requesting to be removed from the mailing list.