ASIC warns planners on death nomination practices

The Australian Securities and Investments Commission (ASIC) has put the financial advice sector on notice regarding the widespread practice of failing to correctly witness binding death nomination forms for superannuation benefits.

This followed ASIC’s discovery that many financial advisers either witness or have staff members witness client signatures on the binding forms without being in the presence of the signatory. They also found that forms had been backdated.

These practices do not comply with the Superannuation Industry (Supervision) Act 1993 and may result in the forms being invalid, which could lead to the rejection of the death nomination.

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Peter Kell, acting ASIC chair said that Australian Financial Services (AFS) licensees, advisers and their staff should consider this a final warning against engaging in these practices.

He particularly emphasised that licensees would be held responsible for misconduct in this regard.

“AFS licensees have ultimate responsibility for the conduct of their representatives and need to effectively monitor and supervise their representatives,” Kell said.

ASIC said that AFS licensees must train staff on their professional and ethical obligations, monitor and supervise their representatives, remediate consumers where misconduct is found, and identify breaches in a timely manner.

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How hard can it be to follow principles and procedures? Idiots such as these types of planners and their organisations keep giving independent financial planners a bad name and keep giving bad service to their customers.

The silence from the bodies representing the financial planning industries over malpractices follows their norm.

The ASIC, even through it has shed light on these anti-client practices, has taken so long to tackle something that has been known within the industry.

Now lets see if the usual pack of defenders of bad planning behaviours have any principles themselves in this important matter for clients of the financial planning industry.

Hedware, your adviser bashing doesn't cease does it? And you'll pick up on the slightest bad media to do so. You and your mate Kell look for any reason to bash planners, bet you loved the purposely misrepresented data that this so auspicious body proclaimed over LIF, and now refuses to release the clearly corrupt and biased info that backed that erroneous report.
I am betting the exact details and data around this 'widespread' 'discovery' by ASIC also fails to see the light of day, and is yet another dreamt up drama by this particular 'idiot' to keep our reputations down and attempt to look like they are doing something while grubbing ways to get more funding for their salaries, ala Medcraft's parting gift.

Joe B Good B Wrong. I have consistently promoted independent professional financial advisors. I believe that in today's economic, government and business environment that they are as essential to everybody as are doctors, dentists, and so on. I want them to be honest, trustworthy, competent and law abiding, and working in the best interests of their clients. Also I want them to make money and to do this through payment for services i.e. not by backhanders.
The bad advisors and planners give the good ones a bad name and a bad reputation. The bad advisors and planners reduce income and increase costs of the good ones.
Good financial advisors and planners want scrutiny and oversight to weed out the bad. Good financial advisors and planners have nothing to fear. Your last sentence shows that you don't get it. The public is supporting ASIC and royal commissions and do not truck with views such as your views. Start thinking and see the bigger picture.

I think the question more should be whether advisers should be advising on Binding Noms at all? As an adviser I've always been uncertain about this - personally I think it is legal advice, estate planning and specific advice, not general. I think it opens many litigation pathways and is easy to get wrong. I think it's legal advice.

Dear Bozo,
It is not legal advice. Drafting a "Will" and it's options such as Executors including adding a second one in case the first predeceases the Appointee , POA, EPOA, Testamentary Trusts and Guardianship all fall under the realm of general Estate Planning advice.
The actual drafting and the content of a "Will" document fall under the guise of legal advice.

Many a client who have established a "Will" but failed to take into consideration some of the important additional options to protect their estate failed to do so because no one told them about them, including the drafting solicitor.
The excuse from the drafting solicitor was,... I was not instructed to include say a Testamentary Trust or an EPOA.
So the question for you is, if the solicitor doesn't tell them, what should or shouldn't be in a "Will", and most clients do not know anyway, then who's left to provide that advice ?
It's a rhetorical question !

What's surprising about this report that I suspect that it's only a handful who take shortcuts because getting to this point is a marathon in itself.
The harder option is to get clients every 3 years to renew those lapsing "Binding Death Nominations"even though they thought it was a good idea at the beginning. My understanding is that second time renewals is around 32.0%.

I struggle with that because we all know how the conversation really goes. We raise the subject of Binding Noms, The client says should we do them? We say probably in most cases. The client asks who should I make them too. Now, I guarantee 90% of the time the adviser advises them at that point who to make them out, helps them complete the document etc. Are you saying this is not specific legal advice? I say it is. I say it's not general advice and any client in a court will say it was my adviser who recommended and helped me complete the documents. And in many cases it will not take into account other estate planning arrangements.

Interesting points you both raise. It would be good to get high level legal advice to say whether it is a legal service or financial service in completing a Binding Nomination form. Maybe this advice has been obtained by ASIC, but I could not find it in the ASIC stuff but then I only skimmed through the papers. If ASIC has not done so, then it is wrong of ASIC to make these findings about the failure of advisors to do the Binding Nominations.

I believe that financial advisors are best placed to encourage clients to complete Binding Nominations as financial advisors are really taking a whole of life view when assisting their clients and their financial security. I have been told on a number of occasions that lawyers make better Wills as a consequence of their clients filling out a Binding Nomination at the behest of the financial advisor.

To some considerable extent, financial advisors are at the centre of a client's financial affairs. Financial advisors have to dip into accounting, taxation, dependents' maintenance, estate management, and more. Some even look at the economies and industries behind the investments. They may not be subject experts but they see the linkages and can direct their clients to specialists.

This is a good role for financial advisors and one to be encouraged. Much more useful than simply flogging another financial product.

Dear Bozo,
You're approach to this is all wrong !
I ran a seminar for a multitude of factory workers and to make superannuation a topic for discussion for most,... is boring.
We are going to start with binding Death Benefit nominations, Wills etc
I started with asking, "how many were married" and all but one put up their hands.
I asked a young woman why she wasn't married and she said " because I've lived with the same bloke for the last 3 years". I said "put up your hand, you may as well be married".
The next question was, " how many of you have been married more than once, and more than 50.0% put up their hands.

We are going to talk about "Binding Death Nominations and the impact of why you should think about it.
If you are living with a new wife, girlfriend or someone else and in the event of an untimely death, you'd like to see your new partner receive the benefits from your Superannuation if you suffer an untimely death, then you need to make a Binding Death Benefit nomination.
However, if your first wife didn't clean you out entirely the first time and you'd like her to come and get the rest of your estate upon the event of your untimely death, then do nothing !!!

You'll note that I have not told them who to leave their estate to.
Guess what, everyone in the room got it !!!

Just as matter of interest, I asked if anyone had more than one super fund and just about everyone said "yes". One little voice said I've got 5 super funds. I asked him,..." if we could combine them free of charge and save you some fees would you be interested?"
Again, everyone in the room got it.
Based on that question alone, I found $2m in super funds that had been largely ignored by both the clients and their previous advisers.
I can't see your problem !
If you ask them who would they like their super/life cover to go to in the event of their untimely death in super, then a binding Death Benefit nomination will do that.
If they have other assets outside of super, you have a duty as part of your advice to the client to find out what they want to do in the event of an untimely death, who they want those assets to go to. Providing general Estate Planning advice is part of that process. I think you run the risk that if you don't inform the client of how they may protect their assets and that includes Estate Planning,...... if they have received legal advice prior, leaves you open to litigation from possible beneficiaries of the estate.
Just remember there is enough case law that says you can be sued for what you didn't do and should have just as much as what you did do and shouldn't have.
Good luck.
How long have you been in this business ?
It does seem like very long.

Putting the condescending remarks aside, and to allow for the best examination of the issue, my response is as follows:
1. A seminar is always general advice, which is not what I'm referring to - I'm referring to Personal advice - good for you if you pick up work from it.
2. You ask ' who do they want their super/life to go to in event of death...a binding nom will do that' - Great, they are giving you the answer - it is execution only, no personal advice, although I would think a warning, general advice about seeking broader estate planning advice would be mandatory, most dealers and the best interests duty make this clear
3. But what if the client asks ' what do you think Mr Adviser, who should I make it out to - I have my wife...' but perhaps it's his 3rd wife, perhaps he already has a Will which also can incorporate super assets even though they don't form part of the estate, they can be in a letter of wishes attached to a Will. Perhaps he already has nominated some children from the 2nd marriage as beneficiaries so his money stays in the bloodline - you might not be aware, but even if you are and then change the Nom to the new wife, that is personal advice. But is it legal advice or financial advice?

You've just told me what you do and most of it seems general. But my example shows it can very quickly merge into the personal. And, if you haven't done a full info gathering exercise on his family map, you could be giving very poor advice, that perhaps you aren't even legally allowed to give. I suspect this type of advice is given regularly in the rollover and move on advice world but I also think it's an area where you will get sued a lot in the future.

30 years, since you asked.

Dear Bozo,
I wasn't being condescending, I was being realistic and practical.
How many clients do you have or have come across in that obscure example you propose ?
Rarely have I ever come across a client that has been married more than twice.
Putting that aside, I don't complete the Binding Death nomination form nor do I complete a "Will" document.
In blended families, the client will tell you who they want their superannuation benefits to go to and in what proportion, if you ask the question.
That's never your decision, it's theirs.
As far as " Wills" go, you can only deal with how current a "Will" is, and whether it reflects what the client wants in the distribution of his/her assets in the event of an untimely death.
But that's the role of a solicitor to fix.
Mate, I've been in this business a bit longer than you, I am a CFP and I did study tax law at University.
I don't see your problem other than to be an font of information that facilitates the client to act, rather than do nothing.

Very reasonable and practical and helpful to clients. Not hard to do and not hard to do it correctly.

Well that's good and that's my point - we've got the point, you are only giving General/Execution only advice. My point is, many aren't. As to obscure - 1 in 2 marriages end in divorce and the remarriage rate is high. Mixed families are very common. That is very realistic because it's based in fact. You must have only perfect clients, much like yourself. I'm not going to match qualifications to make my point other than to say I'm confident I'm equally as well qualified.

Seriously....are you trying to tell me that you advise clients who they should include in a Binding Death Benefit nomination or a "Will" and who they should leave out ?
Is that your business model ?
Unless you have a law degree that includes Estate Planning as one of your core subjects, why would you even think your role is any more than to facilitate the information a client needs to know and arrange a "Will" with the appropriate professional, namely a lawyer.
I'm not perfect, you're not perfect and neither are my clients.
However the problem seems to be that you think your role in the advice chain transcends and usurps the position occupied by other professionals, such as lawyers and accountants.
Don't respond, it's become pointless !

It's clear in my post I don't do as you say - I state 'many are'. That's my point. You need to read what people say before responding.

The issue is that an incorrectly completed BDBN can stuff the whole estate plan. Your line of questioning could go down the path of asking who he (the client) wants to leave his super to. He responds his wife. You ask if there's any provision for testamentary trust. He says no because he forgot what a testamentary trust is (its been 4 years since he had his expensive fancy lawyer draw up his $6k will provisioning for testamentary trusts. Since then the client moved his super from his previous super fund to the Alleycat Future Leaders Fund which offers guarantees around consistently outperforming "the market" (this meant the BDBN or non-lapsing binding death nomination needed to be done for the new account). During that appointment you go ahead and assist him in making 100% BDBN in favour of his wife. After all how could you have possibly known that there was a testamentary trust when he told you there wasn't one. Well dig a little deeper and his actual intention was to leave it on trust for his wife however for other beneficiaries to receive as 2nd level beneficiaries of the trust being his 2 sons to his first marriage. Well what actually happens now is she receives the cash proceeds into her personal bank account remarries the gardener and gardener receives the full value of her assets when she passes away 2 years later. The 2 sons feel pretty hard done by as their Dad was quite wealthy and his will was pretty clear. They decide to proceed with a law suit against Alleycat Enterprises which also funds Alleycat Future Leaders Fund (a shame given it's consistent ability to outperform all major market indices). The court finds Alleycat liable which his P & I insurer is starting to ask questions of why he was actually delving into the realm of assisting completion of estate planning documentation (especially when it is located on a completely separate form).

A reasonable example thanks. Another I thought of was 'I ask who he/she want to leave the funds to - they reply each other. I advise ok make out the BDBN.' All good. But if their Wills are to each other and no claimants other than that to the Estate, why not leave make the Noms to the estate and save the medicare, I think this applies - so, again is this personal advice/Financial Advice/General advice? Just needs a lot of caution I think.

Hey Alleycat, if you're advising a client to set up a super-based life policy or new super fund are you telling me you provide no advice/guidance on the establishment of a Binding Nomination? I don't think it's good enough to simply say, I'm not a lawyer, I don't advise on that stuff, go and see so and so to get some advice. You know what happens then, the client does nothing and you've got a super account on your books with no beneficiary and an SOA in your files that shows you provided no advice to the client on setting up a beneficiary. The only one that's going to have a legal issue is you.

Bozo - all you do is keep it simple, for people who don't have complex family situations you ask who they want to receive it, confirm that person is an eligible dependent and complete the paperwork. If they suggest someone like an adult non-dependent child then you tell them the tax consequences and suggest they speak with their solicitor about the best option for them in conjunction with their Will, if they don't have a Will refer them to a Solicitor to get one, file note it all and move on. You can't just do nothing as it seems Alleycat is suggesting though, I've seen clients go through the process of claiming on life policies with where the beneficiary nom has lapsed and I'm sure you have too, 6 months to get Probate and about $5k in legal fees, not really doing the right thing by the client is it.

I am not supporting this behaviour but when these things happen we should ask WHY is it so? let's move out of the 1980's pleazze. Hello, a Valid Will now includes a Video I record on my mobile phone. Have we not heard of electronic signatures. Could someone please explain why a Binding death nomination needs two signatures? Most documents need 1 "qualified" witness- why not adopt this? Another ridiculous red tape, time wasting piece of outdated process/paperwork. The contracts for the purchase of my $200 Million house came back with a witness on it and surprise it was witnessed by the solicitors sectary who wasn't there. This is wide spread practice in a lot other industries. Once upon a time having unsigned nominations held on file for a SMSF was a touted strategy.

Agree that two two witnesses is excessive. Also why do BDN only last for three years as it should be enough for advisors to remind clients of the last signed BDN and whether the client thinks it needs replacing.

Dear Bozo,
You left out important questioning to suit your case.
The conversation from an Estate Planning point of view, would and should include, how many children do you have, how old are they, what did you intend to do about providing for them ??? Do you have a current "Will" ? What has changed since you did this ? What does it include and what doen't it that YOU should you address with your lawyer. ?
That would flesh out the issues you raised and that is still not specific legal advice !!

Clearly you don't know, that proceeds from an Estate to minor children of the deceased person are treated as Exempted Income under Tax Law. A Testamentary Trust is meaningless if that is the situation.
Like I said, you're wasting my time. I'm done with your imaginary scenario's.

As for others in this post the issue for 2 signatory witnesses to a BDBN is designed to protect Trustees in the event of a claim.

I didn't post that, its BDBN Bozo - not Bozo

The sons are obviously adults champ. Obviously not minors. You threw that in to muddy the water. Slow clap for you. The main advantage of a testamentary trust in the majority of instances is asset protection given that surviving beneficiaries can remain and receive benefits from the trust. The fleshing out of the questioning I agree is very important but this goes to the point of just order taking and completing BDBNs. Even if you ask 95% of the questions you should have at the end of the day you didn't write the will and may not fully understand the intention of the estate plan. Simply nominating the wife instead of LPR could stuff the whole thing. Can't actually believe you are arguing with this if you actually do have a law degree. Same could go with throwing on a reversionary nomination on an ABP. These things need to be confirmed by the solicitor that it all fits prior to implementation. OR you can just keeping doing them. You could take up writing wills while you are at it.

Sorry, my mistake... you both win.
My son is a qualified lawyer doing a Masters in Applied Law which includes Estate Planning
My ex-Associate was a Barrister who gave advice in Trust and Equity as it applied to SMSF's.
But what the hell would I know.
I could not think of a more appropriate pseudonym for either of you.

@ Brett H
Can you please read the posts again!
It was Bozo who has a problem providing BDBN advice in super because he thinks it's providing legal advice and not general advice with pointing out the things you and I know that clients should be concerned about.
It wasn't me that said I don't provide advice on BDBN in super, it was others who have the problem.

Just to put you in the picture because I use a platform that allows me to do a partial rollover out of a personal super fund to establish life/TPD cover outside of super that is self owned, that does contained nominated beneficiaries.

What that does allow me and the client to do is
1. Not worry about non lapsing BDBN on the life cover.
2. Not worry about excess benefits in super
3. Avoid the tax liability on TPD lump sums in super on claimants who are under 55 at the date of claim

I'll leave the misrepresentation of my 'problem' to you, but I've learnt a lot from the thread, thanks.

You're beginning to worry me Alleycat - partial rollovers from super to fund non-super life insurance policies?? I wouldn't be posting that on here mate, you'll have a ASIC knocking on the door in no time. There's no platform that somehow bypasses the preservation rules and "allows" you to do what you're saying.

@ Brett H,
Yes there is and you are totally incorrect.
It's done at the beginning of the establishment of a new super fund.
If you were owned by an independent AFS Licensee as are about 40.0% of the profession, you would know that ASIC has approved this process with a couple of platforms and you have the choice of using one of two available well known large life companies.
When you are cocooned or live in an insular environment, you are limited by of what's available on your AFSL's Approved Product List and your lack of research and knowledge.
There are plenty of advisers who still don't know that when you set up TPD cover as part of the life component in a personal super fund or in an SMSF and there is a tax deduction claimed on the premium, if there is a lump sum claim payment to the life insured up to age 55, it is subject to a 22.0% tax liability and the clients are almost never told of the potential tax liability.
I think that has the potential for an adviser to be sued.
In fact I have been banging on about this with each of the 5 accounting practices that refer clients to me for a number of years.
Here's the irony, last year one of the accountants in one of those accounting practices I deal with actually overlooked the fact that another adviser set up one of their clients with life/TPD in super and they unfortunately missed that the client may have a problem with a TPD claim.
There was a TPD claim and ATO hit the client with a substantial tax bill on the TPD lump sum payout.
The clients engage a tax lawyer @ cost of $10,000,...... to only lose their case with the ATO.
I would have charged him $1,000 and told him he was wasting his time.

For the record in SMSF's I write stand alone TPD cover outside of super for the obvious reason.
There is a scaled formula on the tax liability set down by the ATO on lump sum TPD payments between the ages of 55-60 which ends up at O% tax on the lump sum TPD if the claim occurs after age 60.
Therein lies my lesson for the day and my sermon from the mount.

That's complete rubbish Alleycat. Sounds to me like you are doing the same partial rollovers from super to the insurer's internal super that everyone else is doing but don't understand what's actually happening.

@ Brett H
Heck, it's not rubbish because it's done between the platform and either one of two available insurers.
It's an internal arrangement between the platform and the retail insurer.
Since you need educating, the two major insurers are TAL & AIA.
I don't do the partial rollover, that is facilitated with paperwork between the fund manager and the retail insurer. that allows for this.
You're either insular or you work for one of the vertical integrated Bank/Insurance company/ISN AFSL' and don't know any better !
Why do you think one of the largest platforms in the industry has arrangement with two major life companies that allows an internal partial rollover from a personal super fund to either one of those two retail life insurers ?
Get your facts right before you start making dumb comments.

And for your interest, why would I organise a client's risk insurance via this process.
Well here's the obvious answer, I can provide life/TPD only at about a 40.0% discount to most platform Group rates.
The client & I don't have to worry about the potential of excess benefits in a super fund.
The client & I don't have to worry about the potential tax liability on a lump sum TPD claim if the recipient is under 55 at time of claim.
The client & 1 don't have to worry about renewing BDBN every 3 years as you do under most retail superannuation products.
Do yourself a favour, learn more and you will be all the wiser for the experience !

HI Alleycat, maybe I am getting lost in the jargon but can you clarify whether this is done via a "partial rollover"...the "rollover" part reads to me that is a super fund to super fund transaction? Super Fund to non-super fund third party would be a withdrawal request? Im all for the pro's mentioned and am familiar with being able to attach via a non-super platform but that is just a payment method via an investment account...not super?

Dank, just check the PDS for one of those companies, under the split super link ownership and payment options for SMSF , its all there. The key is the split ownership portion of the TPD , I assume this is what Alleycat is referring too. Its a rollover not a withdrawal.

Thanks TJ, that's just a standard super-link arrangement though. Still have to pay for the self owned parts with non-super monies. How does that reconcile with Aleycat's "Just to put you in the picture because I use a platform that allows me to do a partial rollover out of a personal super fund to establish life/TPD cover outside of super that is self owned, that does contained nominated beneficiaries.

What that does allow me and the client to do is
1. Not worry about non lapsing BDBN on the life cover.
2. Not worry about excess benefits in super
3. Avoid the tax liability on TPD lump sums in super on claimants who are under 55 at the date of claim"

Hey Dank, It doesn't reconcile at all, Alleycat is a little confused about what is actually happening. It's still a policy that's held within super regardless of whether the platform has a tie up with the insurer, and the normal tax on the TPD benefit will be payable. Unfortunately for Alleycat's clients he/she isn't helping them to complete beneficiary nomination on the super account meaning they will have the additional heartache of having to obtain probate before funds can be released in the case of death.

Name the platform Alleycat so that I can speak to the BDM and educate myself. What you are saying is that your clients are gaining early access to super to pay for non-superannuation based insurance just because they are using a particular product. It's ridiculous.

Can't you do a partial rollover from Colonial First State to fund a Life and TPD insurance premium with Comminsure. Also IOOF has deals with TAL and a couple of others. I believe BT are the same. P.S I'm not an insurance expert and I can in on this conversation late.

@BDBN Bozo,
I missed your post and I wasn't ignoring you.

Since you put up a half baked scenario involving the value of a Testamentary Trust in a "Will" that left that option on whether it was meant to include minors or adult children.... lets deal with your slow clap scenario.

The assumptions you made were;
1. The client had forgotten after 4 years of making an expensive "Will" that he had included a Testamentary Trust
2. He'd forgotten that he had two adult children and forms the basis for which you now describe as to why a Testamentary Trust was included.
3. The line of questioning including current and past relationships including adult children and also involving the grand children from those children from a previous marriage would not be discussed by an adviser ?
4. A discussion on how the client would like to provide for those adult children /grand children would not be discussed and how the estate should be protected from potential tax on minors or other claims that may result on the estate that may involve from any one of those adult children.

Do yourself a favour, whilst you're giving your slow hand clap, use one of them to give yourself a deserved clip behind the ear BDBN Bozo !

@ Brett H
I'm happy to have a discussion with you, so why don't you give me a contact number and I will share with you how this actually works.
This is not available on most platform, nor is it something that is common in the industry...otherwise you wouldn't be making the assumptions you have
The client's are not getting early access to their super ....that's your first mistake !
Do yourself a favour, pick up a current TAL application form Page 22/32 shows you how the platform pays for the retail life cover.
You really don't understand, but there is an interpersonal relationship between the fund administrator to do an internal rollover from a particular platform super fund to a retail insurer.
They are not getting early access to their superannuation, which is why it it moving from one entity to another that allows the Platform super fund to be the owner of a retail life policy.
It would be ridiculous if the rollover withdrawal payment went directly to the life insured first and then he/she then used those funds to pay for their personal life insurance to a retail life insurance company.
Like all legitimate rollovers that have preservation rules, it has to go from one approved entity to another and the neither the clients finger prints nor mine ever appear on the money.

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