Advisers warned Treasury on fee cap manipulation a year ago
Financial advisers run the risk of being ethically compromised if their clients seek to ‘game’ the superannuation fee cap regime which both adviser and superannuation groups argue is still open to manipulation.
Superannuation group the Association of Superannuation Funds of Australia (ASFA) has told the Federal Treasury the fee cap regime is open to ‘gaming’ and the Association of Financial Advisers (AFA) pointed out that the system was open to ‘manipulation’ in evidence to the Senate Economics Committee in July last year.
The situation has now become more complex because of the terms of the Financial Adviser Standards and Ethics Authority (FASEA) code of conduct.
AFA director of policy, Phil Anderson, pointed out that his organisation had raised the problems with the superannuation fee cap last year and had posed the situation of a member with an account balance of $1 million at the start of the year withdrawing all but $1,000 on the last day of the year.
The AFA suggested that under the current terms of the legislation such a person would only need to pay a maximum of 3% of the $1,000 account balance, representing a saving of at least $9,970.
“They could then withdraw the remaining balance in the new year plus the refund of the excess fee which the fund must pay within three months of the end of the year. As a result, this would become a common strategy in order to avoid fees in the last year that you choose to be a member of the fund,” the AFA submission said.
“It would also be possible for people to have two funds with different end of financial year dates and move the money between the funds in order to avoid paying fees,” it said.
The AFA suggested that any fee cap should be based on the maximum balance of the account throughout the entire year, and not the balance at the end of the year.
Recommended for you
Financial Services Council chief executive, Blake Briggs, is urging Minister for Financial Services, Stephen Jones, to take advantage of the QAR opportunity to reduce regulatory duplication and ensure advice is affordable.
Former chair of the House of Representatives’ Standing Economics Committee, Tim Wilson, is planning a return to politics after losing his seat in the 2022 federal election.
Morningstar is going to offer research ratings of funds in the $3.5 trillion superannuation sector for the first time in response to demand from financial advisers.
Treasurer Jim Chalmers has opened a consultation into the design of the annual superannuation performance test, canvassing views on a range of reform options.
