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September 2, 2013

When does information become financial advice?

We regularly get questions about the difference between factual information and financial advice.

The issue is important: from 1 July 2013, all financial services licensees must ensure they have systems and procedures in place to ensure representatives who provide personal advice must act in the best interests of customers and place the customer’s interests ahead of their own when developing and providing advice. You must also warn the client if advice is based on incomplete or inaccurate information.

Persons who provide financial product advice to retail clients must also comply with additional disclosure obligations under the Corporations Act from 1 July 2013.

Factual information is more likely to be advice if it makes a recommendation about what a client should do.

A recommendation or a statement of opinion constitutes financial product advice if it is intended to influence a person in making a decision about a particular financial product.

Financial product advice generally involves an evaluation, assessment or comparison of, some or all of the features of a financial product.

Under the Corporations Act, all financial product advice is either ‘personal advice’ or ‘general advice’.

Personal advice is financial product advice given or directed to a person (including by electronic means) in circumstances where the person giving or directing the advice has considered one or more of the client’s objectives, financial situation and needs.

All other financial product advice is general advice.

To assist you in applying these rules in practice you should consider ASIC RG175 and RG244.

RG175 contains the following examples of the difference between personal advice and general advice:

  • Mailout to entire client list
  • Investment seminar for all clients (which does not give personal advice in response to audience questions)
  • Mailout of brochure in response to a client query
  • Quoting from a PDS in response to a query
  • Mailout to particular client groups
  • Marketing campaigns to a market segment
  • Investment seminars for particular client groups

RG 244 contains the following examples of giving information and advice:

  • How to invest an inheritance
  • The adequacy of retirement savings
  • A retirement savings health check
  • Changing investment options—Call centre conversation
  • Insurance—Call centre conversation
  • Making extra contributions—Email advice
  • Paying a windfall into superannuation or mortgage
  • Superannuation and Centrelink payments––Effect on age pension of accessing funds through superannuation or a mortgage redraw
  • Transition to retirement
  • How long will my account-based pension product last?
  • Nomination of beneficiaries
  • Motor vehicle insurance—Which level of excess?
  • Information and advice about basic deposit products
  • Advice from a stockbroker to an existing client.

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Posted 2nd September 2013 by admin in Corporations Act, Financial Services, Future of Financial Advice Reforms, Insurance, Superannuation

August 1, 2013

Record-keeping obligations of financial advisers

Keeping proper records of advice to clients and transactions is a key Corporations Act requirement for evidence that financial services are provided efficiently, honestly and fairly.

ASIC has released Consultation Paper 214 Updated record-keeping obligations for AFS licensees (CP 214) containing its proposals for the types of records that must be kept to prove that the licensee and its representatives have complied with the best interests duty and related obligations under FOFA and obligations that apply to superannuation trustees when giving personal advice for which they charge members collectively as intra-fund advice under the Stronger Super reforms.

CP 214 also discusses:

  • records of ongoing fee arrangements entered into with a client
  • copies of documents - such as, fee disclosure statements and renewal notices - that fee recipients must receive for an ongoing fee arrangement, and
  • records to prove the licensee and its representatives have complied with the ban on conflicted remuneration for both personal and general advice.

It is expected that a Class Order will be finalised by December 2013 but ASIC will not strictly enforce the proposed record-keeping obligations until 30 June 2014.

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Posted 1st August 2013 by David Jacobson in Compliance, Corporations Act, Financial Services, Future of Financial Advice Reforms, Superannuation

July 17, 2013

APRA Prudential Practice Guides for Superannuation

The Australian Prudential Regulation Authority (APRA) has released eight final prudential practice guides (PPGs) for APRA-regulated superannuation funds:

  • Prudential Practice Guide SPG 114 - Operational Risk Financial Requirement
  • Prudential Practice Guide SPG 220 - Risk Management
  • Prudential Practice Guide SPG 231 - Outsourcing
  • Prudential Practice Guide SPG 232 - Business Continutity Management
  • Prudential Practice Guide CPG 233 - Pandemic Planning
  • Prudential Practice Guide CPG 234 - Management of Security Risk in Information and Information Technology
  • Prudential Practice Guide SPG 250 - Insurance in Superannuation
  • Prudential Practice Guide SPG 410 - MySuper Transition
  • Prudential Practice Guide SPG 510 - Governance
  • Prudential Practice Guide SPG 520 - Fit and Proper
  • Prudential Practice Guide SPG 521 - Conflicts of Interest

Two further draft PPGs previously released, draft Prudential Practice Guide SPG 530 Investment Strategy – Formulation (SPG 530) and draft Prudential Practice Guide SPG 531 Investment Strategy – Implementation (SPG 531), will be finalised once consultation is complete.

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Posted 17th July 2013 by David Jacobson in Superannuation

June 21, 2013

Superannuation contributions update

The Superannuation (Excess Concessional Contributions Charge) Bill 2013 and the Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Bill 2013 have both been passed by the House of Representatives and will now be considered by the Senate.

UPDATE 24 June: Bills passed by Senate. Awaiting Royal Assent.

The Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Bill 2013 amends the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953 to establish a new system for the taxation of individuals with concessional contributions in excess of their annual cap. This Bill also allows individuals to elect to release an amount of excess concessional contributions from their superannuation interests. Any released amounts proportionately reduce their non-concessional contributions.

The Superannuation (Excess Concessional Contributions Charge) Bill 2013 imposes a charge on taxpayers who have concessional contributions in excess of their annual cap to ensure that they do not receive an advantage over those taxpayers who do not exceed their annual cap.

If passed, the Bills the amendments will apply in the 2013-14 income year.

From 1 July 2013, the concessional cap for individuals aged 59 and over will be raised to $35,000 and from 1 July 2014, the concessional cap for individuals aged 49 and over will be increased to the same level.

Currently individuals must pay excess concessional contributions tax at a rate of 31.5 per cent on their excess concessional contributions (in addition to the tax on contributions paid by the super fund). The Bill repeals the excess contributions tax in relation to excess concessional contributions and instead provides for excess concessional contributions to be included in an individual’s assessable income and subject to a charge to account for the deferral of tax.

Individuals may choose to pay the liability from their own sources, or use their superannuation monies. A non-refundable tax offset of 15 per cent is provided to individuals to account for the income tax paid by the fund.

Individuals who exceed their concessional cap are also liable to a new interest charge, the excess concessional contributions charge, which is designed to account for the income tax that would otherwise have been paid earlier on these amounts had they been taken as salary, wages or profits.

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Posted 21st June 2013 by David Jacobson in Superannuation, Tax

June 17, 2013

Limited AFS licence for SMSF advice

ASIC has released Information Sheet 179 Applying for a limited AFS licence (INFO 179) to assist those intending to apply for a limited Australian financial services licence for superannuation advice from 1 July 2013.

Accountants who wish to continue giving advice to their clients about SMSFs will need to obtain a new form of AFS licence, which is referred to as a ‘limited’ AFS licence. Any person can apply for a limited AFS licence (i.e. not only recognised accountants) (Background).

A limited AFS licence can contain the following authorisations:

  • financial product advice on self-managed superannuation funds (SMSFs)
  • advice on a client's existing superannuation, in certain circumstances, and
  • class of product advice on superannuation products, securities, simple managed investment schemes as defined in the Corporations Regulations 2001, general and life insurance, and basic deposit products.

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Posted 17th June 2013 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms, Superannuation

June 11, 2013

Lost and Unclaimed Superannuation Money Discussion Paper

The Government recently announced that it will further increase the account balance threshold below which lost superannuation accounts are transferred to the ATO from $2000 to $2,500 from 31 December 2015 and to $3,000 from 31 December 2016.

As part of this consultation process the Government has now released for public consultation the Lost and Unclaimed Superannuation Money Discussion Paper.

The discussion paper seeks views on new strategies to both reduce the number of lost and unnecessary accounts and prevent the proliferation of these accounts into the future.

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Posted 11th June 2013 by David Jacobson in Financial Services, Superannuation, Tax

June 5, 2013

Superannuation advice licensing of accountants

The Corporations Amendment Regulation 2013 (No. 3) was registered on 4 June 2013.

The Regulations provide transitional financial services licensing arrangements for superannuation advice by recognised accountants from 1 July 2013. The exemptions cease on 1 July 2016.

‘Recognised accountant’ means a person who holds a Public Practice Certificate issued by CPA Australia Ltd or the Institute of Public Accountants, or a Certificate of Public Practice issued by the Institute of Charted Accountants in Australia.

The Regulations:

  • provide that recognised accountants, partnerships or corporations who apply for an AFSL between 1 July 2013 and 30 June 2016 and only provide particular superannuation advice services do not have to demonstrate that they meet the experience required for the purposes of the organisational competence requirement in section 912A(1)(e);
  • provide that licensees who receive an AFSL under this streamlined process must within three years of being granted the licence, if requested in writing by ASIC, demonstrate to ASIC they have the requisite knowledge and the competence to provide the financial services covered by their licence; and
  • provide that any licensee who only provides particular advice services and does not handle client-money can lodge an annual compliance certificate instead of an auditor’s report.

The exemptions only apply to recognised accountants who are only licensed to provide one or more of the following limited financial services:

  • financial product advice on self-managed superannuation funds including, but not limited to, advice to acquire (or not to acquire) or dispose of a self‑managed superannuation fund;
  • financial product advice on superannuation products in relation to a person’s existing holding in a superannuation product but only to the extent required for making a recommendation that the person establish a self-managed superannuation fund or providing advice to the person on contributions or pensions under a superannuation product;
  • class of product advice on superannuation products, securities, simple managed investment schemes, general insurance products, life risk insurance products, basic deposit products;
  • arrange to deal in an interest in a self-managed superannuation fund.

‘Class of product advice’ is defined as financial product advice about a class of products but does not include a recommendation about a specific product in the class.

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Posted 5th June 2013 by David Jacobson in Corporations Act, Financial Services, Superannuation

May 13, 2013

Chief Risk Officer requirement for ADIs and insurers

APRA has released for consultation a proposed cross-industry prudential standard to harmonise and consolidate its risk management requirements for ADIs and insurers– Prudential Standard CPS 220 Risk Management (CPS 220).

The proposed CPS 220 will replace the existing industry-specific risk management standards for general insurers and life insurers, and will include the risk management requirements for ADIs that are currently spread across a number of ADI prudential standards.

CPS 220 will not apply to the superannuation industry. Instead, RSE licensees must comply with the superannuation-specific risk management prudential standard due to commence on 1 July 2013.

The most important changes contained in CPS 220 are the requirements for:

  • a Chief Risk Officer (CRO) who is independent from business lines, the finance function and other revenue-generating capabilities. The CRO must not be the Chief Executive Officer, the Chief Financial Officer, Appointed Actuary or Head of Internal Audit; and
  • the establishment of a separate Board Risk Committee that provides objective non-executive oversight of the implementation and on-going operation of the institution’s risk management framework. The Committee must be chaired by an independent director who is not the chair of the Board.The chair of the Board Audit Committee may also chair the Board Risk Committee.

APRA is proposing that the Risk Committee must operate under a different charter than the Board Audit Committee, although APRA’s composition requirements will not prohibit the same people sitting on both committees.

The Board Risk Committee is required to provide prior endorsement for the appointment or removal of the CRO. If the CRO is removed from their position, the reasons for removal must be discussed with APRA as soon as practicable, and no more than 10 business days, after the Committee’s endorsement is agreed upon.

The Board Risk Committee must invite the CRO to attend all relevant sections of meetings of the Committee.

APRA proposes that the chair of the Board and the chair of the Board Risk Committee make an annual attestation as to the adequacy and effectiveness of its risk management framework.

Prudential Standard CPS 510 Governance will also be changed to require the Board Audit Committee to provide prior endorsement for the appointment or removal of the APRA-regulated institution’s auditor and Head of Internal Audit. If the auditor or Head of Internal Audit is removed from their position, the reasons for removal must be discussed with APRA as soon as practicable, and no more than 10 business days, after the Committee’s endorsement is agreed upon.

APRA expects to finalise the proposed CPS 220, updated CPS 510 and a prudential practice guide prior to their implementation date of 1 January 2014.

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Posted 13th May 2013 by David Jacobson in Financial Services, Insurance, Risk Management, Superannuation

Higher concessional superannuation contributions cap

The Government has released for public consultation an exposure draft of the legislation to implement the higher concessional superannuation contributions cap for older individuals announced by the Government on 5 April 2013.

The Government will provide an unindexed $35,000 concessional cap to anyone who meets certain age requirements.

The start date for the new higher cap will be 1 July 2013 for people aged 60 and over. Individuals aged 50 and over will be able to access the higher cap from 1 July 2014.

The higher cap is temporary and will cease when the general cap indexes to $35,000 (expected to be 1 July 2018).

UPDATE 30 May 2013: Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other Measures) Bill 2013 has been passed by the House of Representatives.

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Posted 13th May 2013 by David Jacobson in Superannuation, Tax

May 2, 2013

Draft MySuper Regulations released

Treasury has released for comment draft Superannuation Legislation Amendment (MySuper Measures) Regulation 2013 to implement the MySuper reforms.

A key feature is a product dashboard which will provide a single page summary of key performance indicators for each MySuper product. See the sample product dashboard.

These indicators will include an annual dollar disclosure of fees, the target investment return and a clear statement of investment risk.

The Regulation:

  • prescribes the way in which information in the product dashboard is to be worked out and presented;
  • prescribes how fees for superannuation products are to be disclosed in product disclosure statements;
  • prescribes the portfolio holdings information that will be publicly available on an registrable superannuation entity (RSE) licensee's website;
  • specifies the types of documents and information that trustees will need to publish on their websites (including information on trustee and executive officer remuneration);
  • requires RSE licensees to include the latest product dashboard in the member's periodic statement; and
  • requires trustees to inform members that they can request written reasons for decisions made (and in cases where no decision has been made) in relation to non-death benefit complaints.
  • requires dual regulated entities to inform the Australian Securities and Investments Commission (ASIC) of events that may lead to material adverse changes in their financial position;
  • prescribes factors that may be used for a lifecycle investment strategy;
  • permits the governing rules of a superannuation fund to limit contributions that are transfers from a foreign superannuation fund;
  • clarifies the circumstances in which a person is a defined benefit member to ensure they are excluded from certain MySuper requirements, and gives priority to accumulation interests (of both members and other beneficiaries) over defined benefit interests in the event of a winding-up of a technically insolvent defined benefit fund;
  • makes various technical and consequential amendments such as: requiring RSE licensees to provide the Australian Prudential Regulation Authority (APRA) with early disclosure of successor fund transfers and other information; applying relevant provisions to persons involved in the management of an RSE licensee that is also a First Home Saver Accounts provider; and to update references in the regulations; and
  • repeals and/or amends existing regulations relating to subject matter that will be dealt with in APRA prudential standards and to update the definition of an eligible rollover fund.

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Posted 2nd May 2013 by David Jacobson in Financial Services, Superannuation
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