Top barrister Bernard Quinn KC says section 99FA of the Superannuation Industry (Supervision) Act pertaining to advice fee deductions remains “problematic” even after the Albanese government made tweaks in an effort to appease industry angst about the draft law.
In a formal expert opinion seen by Investment Magazine, Quinn – a leading silk who led an investigation into racism at the Hawthorn AFL club, and who was once an associate to High Court Judge Michael Kirby – argued the law as passed by the Parliament last month in the Delivering Better Financial Outcomes bill does not lessen the regulatory burden on trustees.
“In my opinion, the new section 99FA remains problematic from a regulatory and compliance perspective,” Quinn wrote in the opinion, which was instructed by lawyer Simon Carrodus of Hamilton Locke, acting for the Association of Independently Owned Financial Professionals.
“This is essentially because it fails to faithfully and clearly implement the relevant recommendation of the Quality of Advice Review, namely Recommendation 7, and will accordingly not achieve the central objective of that recommendation.”
The opinion notes that in her final report, Allens partner and QAR lead Michelle Levy recommended that the law be clarified to “provide superannuation trustees with more certainty about paying advice fees agreed between a member and their financial adviser from the member’s superannuation account and ensure that advice fees are not paid in breach of the SIS Act and are not taxable benefits for members”.
While the government’s DBFO legislation describes the new s99FA as “Recommendation 7 amendments”, Quinn argued that the law as drafted “does not reflect the essence of Recommendation 7 or the objective of minimising red tape for superannuation trustees”. In that sense the DBFO legislation could be seen as paying lip service to Levy’s recommendation.
The QAR was clear that payments by a super trustee from a member’s account to a financial adviser for personal advice about the member’s interest in the find should be enabled upon the direction of the member. “Recommendation 7 did not contemplate that such payments remain conditional upon anything other than a member’s informed consent,” Quinn argued.
However, the new legislation section contains multiple paragraphs that could, in Quinn’s opinion, still be construed by regulators or the courts as requiring trustees to scrutinise SOAs provided to fund members.
Prohibitive, not permissive
In technical legal terms, Quinn argues that is because the law is drafted as a “general prohibition subject to a suite of exceptions rather than being expressed as permissive but subject to the single condition of informed consent”.
“Given the present lack of clarity in this regard, without clear and unambiguous direction or guidance from ASIC and/or APRA to the contrary, many prudent trustees may receive advice to, and will likely, take a conservative approach to the operation of the provision to minimise risk of contravention rather than focusing on facilitating payment requested by members for the timely provision of ‘good’ advice by their financial advisers,” Quinn argued.
This outcome would be to the detriment of fund members seeking “speedy personal advice”, he argued, while also contributing to the status quo of “excessive compliance burdens or red tape” continuing in the industry, counter to the policy goals of the QAR and the government’s response.
The finding flies in the face of comments by the government, corporate regulator and lobby groups for super trustees that the law would not require trustees to check every SOA, which would create additional red tape for both advisers and funds.
ASIC Commissioner Alan Kirkland has on multiple occasions made clear that ASIC’s reading of the law as drafted was that it would not impose any additional oversight obligations on trustees that did not already exist in the law.
Nonetheless, Minister for Financial Services Stephen Jones agreed to revise the wording around s99FA following concerns raised by the Financial Advice Association, Financial Services Council and JointLicensees Group. WT Financial Group chief executive officer Keith Cullen said at the time the government backdown was a “huge win for common sense” and praised the minister for having the “pragmatism and courage to make the amendments”.
Though Quinn argued the law as passed by the Parliament in July still has deficiencies, he wrote that these could be ameliorated by specific guidance from the regulators to help avoid the “spectre of the risk-averse approach to compliance”.
‘Poor legal drafting’
Lionel Rodrigues, a practising adviser and chair of the AIOFP’s technical committee who was involved in briefing Quinn and completed his Masters of Law thesis on financial advice regulations, said the barrister’s opinion provided evidence of “poor legal drafting”.
“The intent of Recommendation 7 has not been achieved, resulting in higher opportunity costs for the member and an opportunity lost to make quality financial advice accessible and affordable,” Rodrigues said in a written note to stakeholders accompanying the expert opinion.
AIOFP executive director Peter Johnston went further, claiming Quinn’s opinion also suggests some deficiencies in the financial services policy formulation process, especially the legal knowledge of Treasury advisers and officials.
“Currently we have second-tier Canberra public service legal minds recommending sub-standard policy outcomes to politicians in Canberra, who more than likely have limited knowledge on what they are voting on,” Johnston said. “Consumers and business deserves better than this.”
The DBFO legislation process was littered with errors and delays. The first draft failed to mandate a standardised fee consent form, which was later rectified, while the wording of the bill tabled in Parliament in March would have accidentally banned commissions for general advice providers.
But Jones told the first episode of the new season of the Professional Planner Shape of Advice podcast that the government had racked up some strong legislative achievements in its bid to boost access to advice, including the introduction of the so-called experience pathway (which was championed by the AIOFP and committed to by Jones when Labor was in opposition) and the first tranche of the QAR recommendations.
