Giving and collectively charging for intra-fund advice

This is Information Sheet 168 (INFO 168). It gives guidance to superannuation trustees and other persons on giving and collectively charging for certain types of simple superannuation advice under the Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012 (Stronger Super reforms), which modifies the Superannuation Industry (Supervision) Act 1993 (SIS Act).

The purpose of this information sheet is to provide guidance to industry about what may and may not be collectively charged, what the record keeping requirements are and to outline the other reforms that may affect the giving of advice.

What is intra-fund advice?

‘Intra-fund advice’ refers to the types of advice that a superannuation trustee can provide to members where the cost of the advice is borne by all members of the fund. If you are a trustee that is a registrable superannuation entity (RSE) licensee, under the Stronger Super reforms, you can offer intra-fund advice to members of the fund after 1 July 2013.

The objective of the Australian Government is that superannuation funds can continue to provide a member 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: see the Explanatory Memorandum to the Stronger Super reforms (Explanatory Memorandum), paragraph 1.3.

If you offer a MySuper product, intra-fund advice must be available to all members on the same terms. You may offer intra-fund advice on any MySuper product or Choice product in a superannuation fund. The intra-fund advice may be provided by you directly or by another person acting as your employee or under an arrangement with you.

When can I collectively charge for advice?

A superannuation trustee may collectively charge for personal advice where the advice is not ongoing and does not fall within one of the prohibitions: see ‘What are the restrictions on collectively charging for advice?’ below.

The types of advice for which a superannuation trustee is likely to be allowed to collectively charge, where the advice is not ongoing, include advice to a member about:

• the extent of cover provided by the insurance arrangements that apply to the member’s interest in the fund and the types of cover that may be suitable for them

• increasing contributions

• changing investment options within a fund.

Please note this is not an exhaustive list.

See Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244) for guidance on how to provide advice on some of these topics in a scaled manner.

What are the restrictions on collectively charging for advice?

You are restricted from collectively charging members for various types of personal advice. For example, you cannot charge across the membership of the fund or any other member (apart from the advice recipient) for types of advice that are likely to be more complex and ongoing in nature.

Where one or more restrictions apply to an advice situation, the member who receives the advice should incur the cost of that advice, rather than the membership of the fund as a whole or any member or members. The receiving member must bear the cost of the advice and it is prohibited for any other member to bear the cost, directly or indirectly.

The circumstances in which you may not collectively charge are set out in section 99F of the SIS Act. In summary, you may not collectively charge members for personal advice that is given in one or more of the following circumstances:

• the person to whom the advice is given has not acquired a beneficial interest in the fund, and the advice relates to whether the person should acquire such an interest

• the advice relates to a financial product other than a beneficial interest in the fund, a related pension fund, a related insurance product or a cash management facility within the fund

Note: For the definitions of these terms, see section 99F of the SIS Act, or in the case of a ‘cash management facility’ within a fund, section 946B(1) of the Corporations Act 2001 (Corporations Act).

• the advice relates to whether the member should consolidate their superannuation holdings in two or more superannuation entities into one

• the advice is ongoing personal advice, to the extent that there is a reasonable expectation that you or a person acting on your behalf as an employee or under an arrangement with you will periodically review the advice, provide further personal advice or monitor the implementation of recommendations or their results

• other circumstances that are prescribed in future regulations.

In addition, personal advice that is provided to an employer of one or more members of the fund may not be charged through a fee charged to members of the fund: see section 99C of the SIS Act. This prevents commissions and other costs being deducted from employee balances for advice that the employer receives: see paragraph 1.9 of the Explanatory Memorandum.

If you offer a transition-to-retirement (TTR) strategy, you might not be allowed to collectively charge members for advice, unless the advice is given for a related pension fund and is not ongoing. Superannuation trustees should carefully consider whether they can collectively charge for certain TTR advice, depending on whether the advice is ongoing and its complexity. Not all TTR advice can be collectively charged, particularly if it does not involve a related pension fund.

What about MySuper and conflicted remuneration?

The Corporations Act defines conflicted remuneration, in the context of advice, as any benefit given to an Australian financial services (AFS) licensee, or its representative, who provides financial product advice to retail clients that, because of the nature of the benefit or the circumstances in which it is given, could reasonably be expected to influence:

• the choice of financial product recommended to clients by the AFS licensee or representative, or
• the financial product advice given to clients by the AFS licensee or representative (see section 963A of the Corporations Act).

We have provided guidance on complying with the provisions on conflicted and other banned remuneration in Divisions 4 and 5 of Part 7.7A of the Corporations Act: see Regulatory Guide 246 Conflicted and other banned remuneration (RG 246).

If you apply for an authorisation to offer a MySuper product, you must not deduct any amount from the MySuper product that relates to the payment of conflicted remuneration to an AFS licensee or a representative of an AFS licensee: see section 29SAC(1)(a) of the SIS Act.

The SIS Act also extends the meaning of conflicted remuneration beyond the definition under the Corporations Act: see section 29SAC(3) of the SIS Act. As a result, for that purpose, the definition includes the payment of amounts from a MySuper product that would be conflicted remuneration relating to advice provided to you, the RSE licensee, as a retail client.

Your authorisation to offer a MySuper product can be cancelled by the Australian Prudential Regulation Authority (APRA) if it is satisfied that you have charged conflicted remuneration. If you are an AFS licensee, ASIC may also take regulatory action.

How do the FOFA reforms apply to intra-fund advice?

The Future of Financial Advice (FOFA) reforms introduced a number of new requirements into the Corporations Act, including the best interests duty and a ban on conflicted forms of remuneration. These requirements are contained in Part 7.7A of the Corporations Act.

If you provide intra-fund advice, you must ensure that the advice complies with the requirements in Part 7.7A (except for the opt-in requirement, which is discussed below). This is clear in the Explanatory Memorandum.

This means that all personal advice, including intra-fund advice, that is provided to members must comply with Part 7.7A, including:

• the best interests duty (section 961B)
• the obligation for advice to be appropriate (section 961G)
• the obligation to prioritise the client's interests (section 961J)
• the conflicted remuneration provisions (Divisions 4 and 5 of Part 7.7A) – see paragraph 1.8 of the Explanatory Memorandum.

The best interests duty and the appropriateness of advice may be particularly relevant when providing advice to a member to move from the MySuper option to a Choice option.

We have released a number of guides to help industry comply with these requirements. Much of this guidance is relevant to providers of intra-fund advice. Regulatory guides that relate to the FOFA reforms include Regulatory Guide 175 AFS licensing: Financial product advisers—Conduct and disclosure (RG 175), which has been updated to include guidance on meeting the best interests duty and related obligations, RG 244 and RG 246.

In addition to the requirements described above, the FOFA reforms introduced a requirement for advice providers to ask their retail clients to opt-in, or renew, their advice agreements every two years if their clients are paying ongoing fees (opt-in requirement).

What other laws continue to apply to financial product advice?

Intra-fund advice is a type of financial product advice and, as such, other relevant laws continue to apply to it – including other advice provisions under the Corporations Act.

Persons involved in the provision of personal advice must continue to satisfy the requirements in Chapter 7 of the Corporations Act – for example, the obligation for an AFS licensee or its authorised representative to give the member a Statement of Advice (SOA) where applicable.

We have provided guidance on meeting your legal obligations when giving personal advice: see RG 175 for our guidance on the requirements for giving advice and SOAs, and RG 244 for our guidance on giving scaled advice.

What records must I keep?

We expect you to be able to demonstrate which advice provided to members is intra-fund advice to justify how you charge for this advice directly or indirectly. If you are an AFS licensee, you must keep records on any personal financial advice that is provided, including SOAs, for at least seven years: see Pro Forma 209 Australian financial services licence conditions (PF 209), condition 52 and RG 175.

What should I communicate to members?

You should consider what messages to give members to explain how you charge for intra-fund advice, as well as the limitations in the scope of this advice: see RG 244 for our guidance on how to scope and scale advice generally, and the importance of communicating clearly to members.

Intra-fund advice is designed to provide members with easy access to simple advice. However, more complex advice may require a member to incur the cost of the advice. If you offer intra-fund advice services, we expect you to have in place internal policies to manage the costs of these services and ensure they are not excessively used by any particular member to the detriment of other members: see paragraph 1.45 of the Explanatory Memorandum.

Where can I get more information?

• Visit the Australian Government’s Stronger Super website.
• Read:
  • RG 175 AFS licensing: Financial product advisers—Conduct and disclosure
  • RG 244 Giving information, general advice and scaled advice
  • RG 246 Conflicted and other banned remuneration
• Contact us online or call 1300 300 630.

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.