Issue 711, 17 June 2019
In this issue:
- Oversight of fee deductions from super accounts: APRA and ASIC expectations
Oversight of fee deductions from super accounts: APRA and ASIC expectations
APRA and ASIC jointly wrote to all registrable superannuation entity (RSE) licensees to reinforce the importance of trustees undertaking appropriate oversight of fees and other charges being deducted from members’ superannuation accounts for payment to third parties such as financial advisers on 10 April 2019 (see ASFA Action issue 706 for further information).
ASIC and APRA have provided the following clarifications in relation to the joint letter, categorised by the headings in the joint letter:
Are the deductions explicitly authorised by members? Are the deductions consistent with the authorisations and disclosures made to members?
- Regarding the expectations for ‘ongoing disclosure’, including the fees in the annual member statement would not be sufficient to fulfil regulators’ expectations. It must be clear that members have a choice in allowing these deductions to occur and could opt out of these fees if they so wished. Including these fees in a member’s annual statement without clear information might imply to members that they do not have a choice in the deduction of particular fees.
Have services been provided?
- In relation to timeframes in which trustees are required to comprehensively confirm services have been provided (ongoing advice and one-off advice), the regulators recommend trustees seek their own legal advice. Regulators emphasised the importance of having appropriate processes in place to identify situations that may require further investigation to confirm whether services had been provided. The requirement to ensure that services had been provided is an ongoing assurance piece that should be reflected in the control measures trustees have in place.
- Where trustees are aware or become aware of particular concerns in relation to advice/advisers, trustees should investigate retrospectively these ‘red flag’ occurrences.
- In addition to improving processes moving forward, the regulators would also expect trustees to look back to confirm whether services have been provided and whether remediation may be necessary.
Is the deduction consistent with the sole purpose test?
- Regulators think that trustees should have appropriate controls in place that identify risks.
- Regulators do not expect trustees to check every Statement of Advice but can complete random sampling to ensure controls are working and appropriate, or where red flags exist a more tailored approach than random sampling might be appropriate.
- Controls can include, for example, considering the amount of fee charged in the context of the member’s total account balance. This control would be in addition to deep dive sampling and investigating advisers that have had complaints.
- So long as trustees can provide evidence of appropriate controls, and the ongoing implementation of these controls, provides evidences of oversight practices in place to ensure deductions are consistent with the sole purpose test.
- Regulators expect to consult with industry stakeholders on changes to their guidance on the sole purpose test during quarter three this year.
Is the deduction in the best interests of members?
- This refers to the question of the deduction of the advice fee and whether the deduction is in the best interests of members. Of particular importance is the quantum of the fee charged. Other data points could include (among others) inactivity of accounts, any complaints data for financial advice provider etc. The trustee should also be alert to any concerns about quality/appropriateness of advice, perhaps on a ‘red flag’ basis (recognising that the Regulators do not expect trustees to generally form an independent judgement on the quality of advice).
- Regulators do not expect trustees to review advice provided to members and make a judgement about the quality of the advice, unless a trustee is or should be aware of a possible systemic or ongoing issue which requires further review.
- The joint APRA ASIC letter was sent against the background of ‘fees for no service’ issues ventilated thoroughly in the Royal Commission and the media. The regulators expect better oversight of charges to member accounts in light of the impact this may have a member’s retirement income and there is one case already being pursued in the courts by ASIC.
If you have any questions about the ASIC and APRA joint letter please contact Maggie Kaczmarska, Senior Policy Adviser, on 02 8079 0849.
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