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With APRA’s review into advice fees and the sole purpose test likely to have implications for SMSFs, advisers may need to restructure the way they charge clients to prevent compliance issues.
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Advisers warned on superannuation advice fees scrutiny
02 August 2019
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Speaking at the SMSF Association Technical Day in Sydney, Colonial First State executive manager Craig Day said the final report of the royal commission stated that advice fees could only be charged to superannuation accounts for advice on a limited number of matters, including consolidation of superannuation accounts, selection of a superannuation fund or investments in a fund.
Mr Day said this has left advisers uncertain of whether they are able to charge fees to a fund for strategy advice that relates to increasing a client’s superannuation benefits.
“The APRA guidance that we have in relation to the sole purpose test and adviser fees is 20 years old. Following the final report of the royal commission, the industry is really looking for guidance from the regulators on how adviser service fees will work going forward,” he said.
“Is it just these specific things or can advisers charge funds for strategy as well?”
Mr Day said APRA is currently conducting a review into adviser fees in relation to the sole purpose test.
“We don’t yet have the results of that review yet, so we can expect further guidance on that,” he said.
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Advisers, including those that advise SMSFs, therefore need to be careful about what fees they are charging to the fund as it could result in potential breaches, Mr Day warned.
“Often when we talk to advisers, they will take the view that because the age pension is related to retirement it’s the same thing as super, but it’s not,” he explained.
Centrelink entitlements, Mr Day explained, are completely unrelated to the fund, and that advice on binding death benefit nominations, for example, would be considered to be advice about payments leaving the fund.
“You could argue that you can’t charge an adviser service fee for leaving that fund. You can charge the new fund that’s getting the rollover, but you can’t charge a fund a fee for advice about ceasing their interest in that fund, according to these kinds of interpretations,” he said.
This poses a number of practical issues for SMSF advisers, Mr Day said, in terms of who the adviser is actually providing the advice to.
“Often an adviser will have a single statement of advice (SOA), and in one part of the SOA they’ll be providing advice to the trustee of the fund, but then in terms of the investment strategy, they’ll be talking to the client as a member,” he said.
Mr Day said a lot of advisers may look at all these issues and decide that it’s all too difficult and that they’re just going to charge the client.
“Now if you’re doing that in relation to an SMSF and you’ve given them an SOA where part of the advice fee relates to them as a trustee and I as a member pay that, then what you have created is a contribution which may or may not be a problem, and you’ve got to realise that,” he cautioned.
“So, I think, going forward advisers are going to need to start slicing and dicing their advice fees.”
Some advisers, Mr Day said, may be very hesitant to do that because they’ve always just charged their clients for one large amount.
“Well, now you’re going to have to slice and dice it into different things, especially if the member is in both accumulation and pension phase, which is purely tax. If you try to charge all those adviser service fees to an accumulation member because the fund gets a deduction, you’re now claiming deductions the fund is not entitled to,” he warned.
This is also an area, Mr Day said, which is likely to start attracting greater scrutiny from auditors.
“Following some of the recent court cases, auditors are now being held to a very high degree. These may be the types of questions they’re going to ask you in the future and you’re going to have to be able to justify it,” he said.
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