Super funds may lose class order relief

Super funds providing scaled advice to their members may soon be required to play by the same rules as the rest of the financial planning sector, as the corporate regulator proposes to revoke their class order relief from the so-called ‘suitability rule’.

Superannuation trustees and their authorised representatives currently have class order relief from the requirements in s945A of the Corporations Act where a financial planner is required to know their client, know their product and ensure advice is appropriate.

The proposal to revoke the class order exemption for superannuation funds was included in the Australian Securities and Investments Commission’s (ASIC’s) newly released consultation paper 164 (CP164).

ASIC explained there were indications that very few funds are currently relying on the relief.

“In addition, the Australian Government has announced that s945A will be amended to clarify that AFS licensees can scale advice and still comply with s945A, making our relief less necessary,” the regulator stated in its consultation paper.

CP164 Additional guidance on how to scale advice provides expanded guidance on provision of scaled financial advice, describing the difference between factual information, general advice and personal advice.

However, in providing scaled advice services, financial planners would still need to comply with obligations under Chapter 7 in the Corporations Act and to the so-called ‘suitability rule’.

When ASIC initiated its push for the introduction of scaled advice, the financial planning industry expressed concerns about liability and compliance issues.

“The new guidance CP164 explains how you can scale advice in a way that complies with [these rules],” the regulator stated.

CP164 includes eight examples of giving information and advice to clients about car insurance, purchasing shares, investing in inheritance, adopting a transition-to-retirement strategy, superannuation pension products and retirement planning issues.

The Financial Planning Association (FPA) welcomed CP164, but cautioned that without the consideration of how this interacted with ‘best-interest duty’, the guidance remained incomplete.

“The FPA had provided clear feedback to ASIC on this issue, and we strongly recommended that ASIC not release the consultation guidance paper until the best interest duty had been formulated and incorporated as part of this guide,” FPA chief executive officer Mark Rantall (pictured) stated.

Rantall said the regulator might cause further confusion rather than guidance or clarification for consumers and the profession.

ASIC pointed out in its consultation paper that it was not yet clear whether the proposed Future of Financial Advice (FOFA) reforms would be introduced in their current form, declining to further comment on their implications on scaled advice.

However, if and when the FOFA reforms are implemented, ASIC will review the updated guidance, while submissions to CP164 will close on Thursday, 8 September 2011.