TECE News - May

This month, the TECE team discuss ASIC’s temporary relief measures to assist advisers in providing advice to clients during the COVID-19 pandemic. Included are some statistics around the early superannuation access relief measure plus a FAQ on whether withdrawing funds from superannuation under the early release rules will impact a client’s insurance arrangements.

ASIC has announced three temporary relief measures to assist licensed advisers and registered tax agents to help clients receive affordable and timely financial advice during the COVID-19 pandemic.

The three temporary relief measures include:

1. Relief to facilitate advice about early access to superannuation
2. Relief to extend the timeframe for providing time-critical statements of advice (SOA)
3. Relief to enable a record of advice (ROA) to be given in certain circumstances

To assist the provision of affordable advice on early access to superannuation, ASIC has:

• Allowed advisers to give advice to clients relating to the early release of superannuation without providing an SOA
• Permitted registered tax agents to give advice to existing clients about the COVID-19 early access to superannuation scheme without needing to hold an Australian financial services (AFS) licence.

Advice provided under this exemption by advisers and tax agents must meet the following conditions:

• Clients must be provided with an ROA which meets certain content requirements (discussed below). An ROA is a shorter, simpler document that sets out the advice that is being provided
• The advice fee, if any, is capped at $300 (including GST)
• The advice provider must establish that the client is entitled to the early release of their superannuation, and
• The client must have approached the advice provider for the advice.

There are content requirements that an ROA must include, such as:

• Brief particulars of the recommendation and the basis on which the recommendation is made, including:
  • Whether the client satisfies an eligible ground for the early release of superannuation
  • Based on the client’s relevant personal circumstances, whether the client should apply for early release of superannuation and the reasons why, and
• If the advice provider recommends an early release of superannuation, the name of the superannuation or retirement savings account (RSA) product to which the recommendation relates and the implications for the client in releasing their benefits early.
  • For example, these implications might include, but are not limited to, any consequences the early release would have on the client’s insurance cover and the impact of the withdrawal on retirement benefits.

The advice provider must also give the client the following:

• Information about remuneration or benefits that the advice provider or an associated entity will receive which might reasonably be expected to be capable of influencing the advice, and
• Information about any conflicts of interest which might reasonably be expected to be capable of influencing the advice.

Advisers will have up to 30 business days (instead of the usual five days) to provide an SOA to a client if they have provided urgent (time-critical) advice in response to the COVID-19 pandemic.

An advice provider may only rely on this temporary relief measure in circumstances where:

• The client expressly instructs the adviser that they require the COVID-19 advice on an urgent basis because of the adverse economic effects of COVID-19
• The advice provider reasonably considers this advice is required on an urgent basis because of the adverse economic effects of COVID-19, and
• If the advice involves a recommendation to acquire a financial product and a cooling off period applies, the relevant written statement must be given about the client’s rights when the client is given the advice.
  

Advisers will be able to issue an ROA to existing clients even though clients' personal circumstances have changed as a result of COVID-19 and the client sees another adviser from the same AFS licensee or practice, not their original adviser.

This relief measure is temporary and subject to the following conditions:

• The client expressly instructs the financial adviser that they require the advice due to the economic effects of COVID-19
• The financial adviser reasonably considers that the client needs this advice due to the economic effects of COVID-19
• The client sees the same financial adviser or a financial adviser from the same AFS licensee or practice, but not their original financial adviser, and
• The present advice is in relation to a class of financial products to which the previous advice related.

A financial adviser may only rely on this relief if they keep a record of the advice and give this ROA to the client.

The ROA must set out:

• A brief explanation of the changes in the client’s relevant personal circumstances in relation to the COVID-19 advice (determined having regard to the client’s objectives, financial situation and needs as currently known to the providing entity). This is the change since the previous advice was provided
• Brief particulars of the recommendations being made and the basis of those recommendations, and
• If the financial adviser gives financial product replacement advice, information about any charges the client incurs and the consequences of implementing the advice (as required by s947D of the Corporations Act).

The temporary relief measures will continue to be monitored by ASIC, where ASIC will consider market developments and consult with key stakeholders before revoking the relief measures and provide 30 days’ notice to the industry.

Further information regarding the temporary relief measures can be found on the ASIC website. 

ASIC has released a frequently asked questions page on their website with answers to questions about issues impacting the financial advice industry as a result of the COVID-19 pandemic.

Some of the questions addressed include:

• What ASIC is doing around the temporary relief measures which assist advisers and registered tax agents in providing clients with affordable and timely financial advice during the COVID-19 pandemic.
• What is ASIC doing to help reduce the regulatory burden on financial advisers?
• How can advisers provide new advice and annual reviews in the current environment?
• What about situations where a client needs urgent advice?
• Are there specific considerations for clients around life insurance advice?
  • Note – ASIC is currently monitoring developments in the life insurance industry, including the possible introduction of exclusions for pandemic cover for new policies. ASIC has stated that advisers should be cautious about recommending replacement cover to their clients during this time, even though most clients that currently hold retail policies should be covered for pandemics.
• How do advisers keep up with CPD requirements?

ASIC will be updating this information regularly.

The ATO has warned individuals against taking advantage of the early superannuation access relief measure unless there was a genuine financial need.

ATO client engagement group second commissioner Jeremy Hirschhorn warned that the ATO is aware of superannuation recontribution schemes relating to COVID-19.

The ATO has asked that “individuals, tax agents and businesses be mindful that it is not acceptable to apply for relief payments or benefits where eligibility may be questionable. Applications for relief through stimulus measures based on artificial arrangements will see the ATO take swift action”. 

Did you know, at the time of writing, the ATO has approved 456,000 applications from individuals wanting to withdraw up to $10,000 of their superannuation under the early superannuation access relief measure?

Treasurer Josh Frydenberg also confirmed that the average withdrawal is around $8,000 and the withdrawal applications (which total $3.8 billion) are now with superannuation funds who will begin to pay individuals over the next 5 business days.

Q: Will withdrawing up to $20,000 under the early superannuation release rules impact my client’s insurance arrangements?

A: Withdrawing benefits under this new condition of release will generally not impact a client’s life insurance cover in their fund unless the withdrawal results in the full balance being withdrawn, which would result in the account being closed and the insurance cover being cancelled.

Note, under the ‘Protecting members interests first’ (PMIF) changes that apply from 1 April 2020, trustees must cancel any life insurances held for a member where their balance has been less than $6,000 at any time between 1 November 2019 and 1 April 2020 (unless member has elected to maintain their insurance).

Therefore, even where a member accessing their benefits causes their benefits to reduce to less than $6,000 they will not have their insurance cancelled so long as the value of their account balance was $6,000 or more at some time between 1 November 2019 and 1 April 2020.

However, in this case members need to be aware that the insurance premiums will continue to be drawn from their account and may further erode the balance of their account over time. 

Do you have a technical question about a financial advice strategy or need to find technical resource material? Don’t hesitate to email us at tece@aia.com

Kind regards,
The AIA Technical and Education Centre of Excellence (TECE) Team