On 14 April 2020 ASIC announced three temporary relief measures designed to ease the legal burdens in the Corporations Act 2001 (Cth) & the Superannuation Industry & Supervision Act 1993 (Cth) (the SiS Act) on financial advice and superannuation entities as it relates to personal financial advice and the Government’s early access to super scheme.
The relief is a further response from ASIC to COVID-19 which seeks to allow for the provision of more timely and affordable financial advice. The temporary relief issues a no-action position for superannuation trustees to expand the scope of personal advice that may be provided by, or on behalf of, the superannuation trustee as ‘intra-fund advice’.
To briefly recap on intra-fund advice, super funds can provide their members with simple, non-ongoing personal advice on the member’s interest in the fund and that this advice can be collectively charged across the fund’s membership.
What are the primary legal obligations?
Intra-fund advice may be provided to members of a super fund providing it meets the sole purpose test set out at s 62(1) of the SIS Act, (and does not conflict with prohibitions set out at s.99F of the SiS Act.)
As an overlay to these obligations, the Responsible Entity (the Trustee) of a RSE Licensee must continue to act in the best interests of members of the super fund. Trustees have both a general law and statutory duty in this regard, and in the context of the maintenance of a super fund, acting in members best interests is ordinarily aligned with members’ financial interests.
What is the sole purpose test?
Trustees must ensure that the fund is maintained solely for one or more of what are called the core purposes, or alternatively one or more of the core purposes and ancillary purposes. A core purpose is to maintain the fund to provide benefits for each member of the fund on or after:
- the member’s retirement from any business, trade, occupation or employment;
- the member’s attainment of a prescribed age;
- the earlier of the member’s retirement from any business, trade, occupation or employment or the attainment of a prescribed age; or
- the member’s death, if the death occurred before they attained a prescribed age or retirement, where benefits are provided to the member’s dependants or legal representative.
In order to satisfy the requirements of the test, at least one of the core purposes must always be met. A Trustee is not permitted to operate a super fund in a manner that is inconsistent with the sole purpose test.
How does this relate to the temporary relief & early access to super?
The no action position for the provision of intra-fund advice relating to the early access to super scheme brings with it a number of legal obstacles that Trustees must grapple with.
Namely, there is a legal tension between the early access to super scheme and the sole purpose test. Notwithstanding the temporary relief, the question that may present challenges for Trustees, is whether providing intra-fund advice on subject matter that does not meet the sole purpose test is truly in the best interests of members.
From the members perspective, many will not seek, or need advice regarding the early access to super scheme and thus, the question, is it really in the best interests of all members of the fund to have to pay for that advice? If the answer is that the provision of intra-fund advice in relation to the early access to super scheme does not meet the sole purpose test, it is difficult, even with the temporary relief, to say it is in the best interests of members.
The reality for Trustee’s is that the largest risk in a post Royal Commission regulatory environment is ASIC undertaking an investigation or enforcement action. With the blessing of temporary relief that risk is removed, however the social distance in the conversation leaves open the potential risks for Trustees when acting in a manner that is inconsistent with members’ best interests.
For more information on this topic please contact us and a member of our Financial Services team will be able to assist.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.