Satisfying advice requirements when the clock is ticking

In the lead-up to the 1 July, financial advisers were faced with guiding their clients through the labyrinthine maze of complex changes.

In the lead-up to the 1 July superannuation changes, financial advisers were faced with guiding many of their clients through the labyrinthine maze of complex and far-reaching changes effective from the start of the new financial year, along with transitional provisions that had to be considered in the meantime.

These changes resulted in unusually high demand for financial advice in the period leading up to 1 July, placing considerable pressure on advisers to deliver statements of advice (SOA) within the statutory time frames. Advisers were also finding it difficult to provide advice in a timely manner as the ATO guidance clarifying the operation of the law was only just being finalised and key aspects of the package impacting on SMSFs were legislated at the last minute.

In particular, the ATO Law Companion Guidelines on the capital gains tax (CGT) relief for the transfer balance cap (TBC) and transition-to-retirement reforms, defined benefit income streams paid from non-commutable, life expectancy or market-linked products, and superannuation death benefits and the TBC were only issued by the ATO in March, late April and May respectively. Legislation to include limited recourse borrowing arrangement repayments in the transfer balance account and other technical amendments were only passed in June.

Many of the measures, such as the TBC and total superannuation balance, along with the CGT relief for SMSFs, relied on an individual knowing the balance of their superannuation in retirement phase and their total superannuation balance as at 30 June 2017. As a result, it was difficult in many instances for financial advisers to provide appropriate advice until the last minute close to 30 June.

The demand for financial advice in June was further exacerbated with the ATO writing to over 600,000 individuals who may have been affected by the changes and advising they may want to seek financial advice regarding their personal situation.

Section 946C of the Corporations Act requires that an SOA must be provided when, or as soon as practicable after, personal advice is given and in any event before the adviser provides the client with any further financial services arising out of or that is connected with that advice. In time-critical cases, where the client expressly instructs the adviser they require the financial service immediately or by a specified time, the adviser is permitted to give the SOA later, although it must be within five business days or before any cooling-off period commences.

The advice we were getting from financial planning members was where they were providing time-critical advice with a record of advice, they were attempting to provide an SOA as quickly as they could. However, there were serious concerns they would be unable to provide them within the statutory time frames and it was unlikely the demand for time-critical advice would let up before 1 July.

A situation was developing where consumers requiring urgent professional financial advice would be unable to access it before 1 July as advisers felt they would be unable to meet their statutory obligations in providing that advice. Or worse still, advisers would provide the advice while breaking the law by not meeting their statutory obligations.

A similar situation developed in the lead-up to the Simpler Super reforms in 2007. In that case, the Australian Securities and Investments Commission (ASIC) provided relief to allow additional time for advisers to provide an SOA in relation to urgent advice regarding superannuation by allowing up to 30 days before they had to comply with the requirements of section 946C for advice provided before or on 30 June 2007.

ASIC recognised the difficult position this additional demand was putting advisers in, following representations by CPA Australia, and duly provided an extension of up to 30 days for the provision of an SOA for advice in relation to the July superannuation changes.

This extension of time is a welcome outcome. It is in the interests of consumers and has enabled more consumers to access professional financial advice and have it executed in a timely manner prior to 1 July.

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