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Prompt disclosure is key for advisers

It is imperative for advisers to inform their clients about the federal government’s planned superannuation changes during the current period of uncertainty about the proposals resulting from a lack of legislation and the upcoming election, according to a specialist superannuation lawyer.

“I don’t envy you with your role of having to explain to clients where we’re at just at the minute,” Townsends Lawyers principal Peter Townsend told the SuperCentral Bacon, Super and Eggs Seminar in Sydney last week.

“What are your obligations to your clients about all of this?

“It’s an incredibly difficult question to answer, but I think the foundation for the answer lies in disclosure, that is, telling your clients what the situation is.”

Townsend said adviser responsibilities involved education and information, but to also be as upfront as they could be with clients and explain the difficulties associated.

“Those difficulties are the fact that if you take a step now which contravenes the law as it is proposed to be changed, two things can happen – the law could be changed in that way, in which case you will have helped your client do something unlawful and might be non-compliant, or the law might not change as it’s outlined, in which case the action you took would’ve been fine,” he said.

“Is it a toss of a coin or take the conservative approach?

“With that ability to offset your liability, at the very least the client is brought into the decision.”

Furthermore, there was no panacea or silver bullet for advisers currently, he said.

“But I do know that you need to be more upfront with your clients because at the end of the day the decision is theirs, and even though they might be very unhappy with you about being unable to provide the answer … quite frankly, nobody else knows the answer either,” he said.

“It’s vital that you tell your clients what’s happened and how it might affect their situation, and that there are issues to be dealt with so at least they’ll understand the fact that things are difficult and are difficult for you.

“It seems that surely it would be difficult for any regulator to be penalising people who have simply adopted a wait-and-see attitude, given the … material number of problems that exist between now and where any of these changes are likely to see the light of day in terms of technical detail.

“I would’ve thought a conservative approach would always be the preferred option, but sometimes that conservative approach is not possible, for example, in off-the-plan purchases or compliance with the NALI (non-arm’s-length income) provisions where there are deadlines involved.”

Townsends Business & Corporate Lawyers solicitor Julie Hartley added the issue of calculating catch-up contributions under the new proposals would be a significant trigger point as there was a fair amount of liability for advisers in underestimating client balances.

“It will particularly be an issue where clients change advisers and then it becomes quite difficult to track what contributions were made if the previous adviser wasn’t quite meticulous in keeping records of the transactions,” Hartley said.

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