The CEO of the AIOFP, Peter Johnston, reports on the DBFO/99FB response from the Chair of Technical Services, at the AIOFP, Lionel Rodrigues for your consideration.

Lionel points out that the ‘JONES BACKDOWN’ was a step in the right direction BUT not enough to materially change ‘statutory clarity’ for our industry.

Lionel’s elite understanding of the legal/practical applications of legislation is the best I have seen in over 40 years in the industry. It raises the question of whether the Minister’s source of information totally understands their own advice and its ramifications.

Regards.

In response to your query on the DBFO, I am of the opinion that the amended reforms, whilst welcomed, fail to provide statutory clarity for consumers and the professional financial adviser.

The amended legislation being s99FA of the Superannuation Industry (Supervision) Act 1993 (SIS) now omits s99FA(1), which previously required that “financial advice costs are wholly or partly about a member’s interest in the fund,” and furthermore omits s99FA(1)(b) being that “the amount charged does not exceed the cost of advice about the member’s interest in the fund”.
The amended s99FA (SIS) now provides in s99FA(1)(a) that “the financial product advice is personal advice”. S99FA(1)(b) is absent from the legislation. However, s99FA(1)(c) attempts to provide clarity in so far as this provides for;”[The] trustees charge the cost in accordance with the terms of a written request or written consent of the member”.

The ambiguity arises as to the Explanatory Memorandum stating that trustee may continue to utilize robust risk-based assurance processes. This suggest that the role of trustees to continue to monitor the appropriateness of financial advice in relation to the “member’s interest in the fund”. It should be noted that commentary in the Explanatory Memorandum is not binding at law, nevertheless it is considered persuasive in the context of the legislation.

Confusion is compounded by the position of ASIC. Whilst dated 9 May 2024, ASIC Media Release (24-094MR) announced “ASIC calls on super trustees to improve gate keeping of member’s savings”. There are no changes in the amended s99FA SIS, for the regulator to change its position.
It is also submitted that in attempting to implement reforms, revisions have not been made to the relevant complementary sections of the SIS legislation being s52 and s62 of SIS, to be consistent with the desired intent of the s99FA amendments.

The performance of trustee duties in the “best financial interests of the beneficiaries” is contained in s52(2) paragraph c of SIS. Furthermore, s52(3A) expressly states “payments to third parties must be in the best financial interests of beneficiaries”. It is argued here that obtaining high quality professional advice is in the best financial interests of members /beneficiaries. Section 52 SIS, is silent as to the role or powers of the trustee in actually determining if payment to a third party, in the process of financial advice, should be assessed by a trustee. It would have been opportune when considering changes to the DBFO, that this trustee role be clarified, and changes relevantly be made to s52 SIS.

A similar argument is advanced in reviewing the s62 SIS, commonly referred to as the “sole purpose test”. S62(1)(a) provides for (the core purposes) of the “provision of benefits to members” in subsections (i) to (v). In proposing substantive reforms, s99FA had capacity to align the provision of high quality professional financial advice consistent with the listed core purposes found in s62 SIS. There was an ability to provide statutory clarity in obtaining and paying for quality financial advice complementary to the stated aims of s62 in providing benefits to members.

The above discussion arises as a function of the DBFO legislation following from Tranche 1 of the implementation of aspects of the QAR. Despite consultations with Treasury, the initial proposals inherent in the original DBFO legislation failed to address legislative ambiguities in reviewing advice and payment of advice fees by trustees upon direction of the member. The opportunity to harmonize ss52 and 62 of SIS, to provide definitive direction for the benefit of members, trustees and the professional financial adviser has been a significant oversight.

Lionel Rodrigues holds an Accounting degree, MASTERS in Law/Financial Advice and operates his own AFSL dealing directly with clients for over 30 years.