The Quality of Advice Review contains some very sensible recommendations with respect to financial advice in the superannuation fund setting. Nonetheless, section 3.2 of the Proposals Paper raises the issue of the possible expansion of the concept of intra-fund advice.
The following quote is instructive:
“Most (although not all) superannuation fund trustees have told us they would like to be able to provide more intra-fund advice to their members. They want to be able to provide advice to their members leading up to their retirement and in doing so they want to be able to take into account the member’s assets, social security benefits and, where the member has a partner, the partner’s financial position. Some trustees have said they would like to provide advice to their members about aged care. They say that in order to do so the intra-fund advice regime should be broadened (this could be done by narrowing the restrictions on collectively charging for personal advice in section 99F). I am not convinced this is the best approach.”
The Review also proceeds on the basis that the sole purpose test currently only permits financial advice to be given using fund resources if it relates to a member’s interest in a fund. With respect, this perspective does not articulate, nor do justice to, the current legal position.
This brings us to the elephant in the room. APRA has traditionally held the view that the cost of financial advice may only be borne using superannuation fund assets where the advice is aimed only at a member’s interest in the fund:
Financial planning is now a service which many trustees are considering offering to members… if the service is aimed only at a member’s interest in the fund, such services would generally fall within the sole purpose test. If, however, broader advice is offered, it would be inappropriate for the cost to be borne by the fund.
This statement probably has some genesis in the sole purpose test and needs to be unpacked.
It is submitted that it is an elliptical (and therefore, oversimplified) articulation of the current law to proceed on the basis that the sole purpose test requires that financial advice in relation to superannuation can only deal with the member’s assets in the fund. The fact of the matter is that to properly advise on the member’s interest in the fund, one should not be confined to considering the member’s assets in the fund.
It is submitted that the current legal position is better articulated in a binary fashion along the basis of:
- first, advice relating to a person’s superannuation interest, in order to be appropriate, cannot simply look at the person’s interest in the fund – rather, in order to give appropriate advice, in the vast majority of cases, an adviser would need to have regard to some or all other assets (and liabilities) held by the person outside the fund; and
- second, advice relating to a person’s superannuation interest should be capable of being paid out of superannuation assets.
So, for example, if the advice requested pertains to the level of insurance that a member should optimally hold in a superannuation fund, how can the adviser give appropriate advice without having regard to what insurance the person holds outside of the fund?
Similarly, in relation to advice about optimal levels of retirement savings, how can the adviser provide appropriate advice without having regard to other savings the person holds outside of the fund, together with other retirement savings the person might hold in other superannuation funds?
Query whether the provision of pure “intra-fund advice” produces a different analysis (see ASIC’s note “Clarifying intra-fund advice” dated 4 December 2020).
Once this realisation occurs, it opens the way for more financial advice to be provided by superannuation funds and a greater ability for superannuation funds to be used to increase a member’s access to advice. It also would allow for the superannuation fund to arrange better pricing from external advisers due to the bulk nature of the advice engagement.
It is beyond time for all participants to acknowledge this elephant in the law. At the same time, it is vital that the relevant superannuation fund not be rendered liable for the advice of the advisers it engages. This is subject matter for another discussion but suffice to say for present purposes – the lack of liability of a trustee for financial advice given by advisers in the above circumstances should ideally also be recognised in the legislation.
 APRA Superannuation Circular No. III.A.4 The Sole Purpose Test, February 2001 paragraph 43.