Trustees face breach risk under advice deduction proposals

law superannuation funds superannuation trustees financial advice fees

9 May 2024
| By Laura Dew |
expand image

A leading financial services regulation lawyer has said the government may have good intentions, but the upcoming financial advice legislation needs to be amended to remove the risk of future liability. 

Michael Vrisakis, partner at Herbert Smith Freehills, has 30 years experience in financial services law. He told Money Management there are numerous legal problems with the Delivering Better Financial Outcomes legislation. 

One area of concern is the advice costs being deducted by superannuation trustees, a topic referenced by both the Financial Advice Association Australia (FAAA) and the Financial Services Council (FSC), and he is concerned it will lead to unintended consequences. 

The legislation sets out multiple requirements that need to be satisfied before a trustee can charge the cost of advice against a member’s interest in the fund. This includes an assurance that the financial product advice is personal advice, and is wholly or partly about the member’s interest in the fund.

Earlier this week, ASIC commissioner Alan Kirkland told delegates at the FAAA roadshow that super fund trustees will not be required to check every individual Statement of Advice, but this is contrary to what is stated in the legislation.

Vrisakis said: “There is no doubt that the government and ASIC are coming at it from the right spirit in that they don’t intend additional burden, but you need something specific in the legislation such as ‘reasonable steps’ to ensure everyone is on the same wavelength and there is no slippage or unintended consequences which an explanatory guidance cannot override.

“There are two objective and absolute requirements to satisfy; that it is personal advice and that the charge does not exceed the cost of advice. Because these are unqualified obligations, a trustee is likely to have to do a deep dive into the advice to ensure these criteria are satisfied, with the consequential additional costs for members.

“If it does not delve, a breach can occur despite the trustee’s best endeavours, and that is a lot of burden for the trustee which all relevant players have an interest in avoiding.” 

He is concerned any potential breaches in this regard or if a cost cannot be justified, then there is a risk of regulatory or member liability associated with a breach.

Law Council of Australia

Separately, in a submission to the review, the Law Council of Australia agreed that the legislation targets an unachievable “standard of perfection” for the superannuation trustee.

The Law Council’s superannuation committee said it will be very difficult for a super fund trustee to know or be reasonably confident whether an ongoing fee arrangement between a fund member and a third-party adviser complied with the requirement.

“It is very unlikely that a superannuation fund trustee could ever be completely satisfied as to whether a particular arrangement complies at all relevant times.

“Paragraph 99FA(1)(d) implies a level and cost of due diligence and governance on the part of the trustee that is in the committee’s respectful opinion unreasonable (and an unfair burden to be shared across the fund in terms of cost) and, indeed, a standard of perfection that a trustee, not being the fee recipient, is simply not in a position to achieve.”

For this reason, the risk of inadvertent non-compliance with the requirements, which the committee said are already “notoriously difficult” to meet under existing legislation, remains in place.

Without any changes being made, the proposed legislation would not meet the objectives of the Quality of Advice Review in reducing red tape and providing superannuation fund trustees with more legal certainty about paying advice fees from a member’s super account.

“It will also make superannuation trustees very reluctant to permit personal advice fees to be paid from their funds and it is therefore inconsistent with the government’s apparent policy intention.”

The Superannuation Committee recommended that the bill include a provision to the effect that paragraph 99FA(1)(d) of the SIS Act is deemed to be satisfied if:

(a) the fee recipient in relation to the ongoing fee arrangement is neither the superannuation fund trustee nor a representative of the trustee; and 

(b) the trustee has taken reasonable steps to ensure that any applicable requirements of Division 3 of Part 7.7A of the Corporations Act are met in relation to the ongoing fee arrangement. 

Read more about:


Submitted by PETER JOHNSTON… on Thu, 2024-05-09 10:52

Commissioner Hayne recommended Consent Forms to stop Bank Executives [not Advisers] illegally taking fees out of consumers bank accounts to pay for a non - existent service. The Banks leave advice and consumers/advisers are caught with this unnecessary impost thanks to a Canberra 'thought bubble' from Bureaucrats who have never been in the real world......the only way to stop this is Advisers mobilizing their clients to intimidate Politicians.

Submitted by Chris Cornish on Thu, 2024-05-09 11:11

If an adult signs a form stipulating a payment to occur, that should be the end of the matter - no need for the government to be involved. This is especially the case for when adults have met a condition of release and are meant to have full access to their funds anyway.

Add new comment

The content of this field is kept private and will not be shown publicly.

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry



Planners will be in short supply, with only 376 in FY23–24. In my experience, of this number, only around 20% to 30% wi...

6 hours 54 minutes ago
Peter James

As usual there is no delineation in the article between risk specialist advisers and investment specialist advisers. Thi...

7 hours 58 minutes ago
Mark Harris

Is he serious, improvements from legislation change, all I see is more ASIC compliance and higher costs, this government...

8 hours 55 minutes ago

Insignia Financial has unveiled a new operating model and executive team, including a new head of advice, while three senior executives are set to depart the licensee....

1 week 5 days ago

The $280 billion Australian Retirement Trust is the first superannuation fund off the block to report its performance for the 2023-24 financial year....

3 weeks 1 day ago

Analysis by Chant West of the annual performance of growth superannuation funds has uncovered which ones see the best performance....

5 days 3 hours ago


Fund name
Ardea Diversified Bond F
144.00 3 y p.a(%)
Hills International
63.39 3 y p.a(%)