By Mark Bland, Partner and Geoffrey McCarthy, Special Counsel

ASIC has used their regulatory tool-kit to issue a package to assist the provision of affordable personal advice on the COVID-19 early release scheme and other advice necessitated by the financial implications of COVID-19. The package includes relief from the law and a no-action position.  ASIC has also announced the deferral of the release of findings on certain current surveillance projects and delays in some regulatory changes.

There may not be a great demand for advice on the COVID-19 early release scheme  immediately, from those rushing through the ATO’s self-certification of eligibility gates. However as JobKeeper payments become available and social distancing restrictions relax, leading to some members having less immediate need for cash, demand for advice may increase. If advisers and trustees want to meet this demand, they should consider their approach to the options ASIC has created. Trustees will also need to be careful about keeping general advice general, a matter that is currently before the High Court. Trustees will need to be careful generally in light of the Treasuer’s direction to ASIC to review trustees’ communications on early release.

Overview

ASIC has provided three types of exemptions from the financial advice laws, all of the subject to conditions:

• Urgent advice – allowing up to 30 business days to give a statement of advice (SoA) after time critical “COVID-19 advice” is given including verbal advice.

• Records of Advice – creating two new situations when a record of advice (RoA) can be used instead of an SoA. One for existing clients and the other which is also available for new clients and which is partly directed at intra-fund advice.

• Registered Tax Agent – relief from the requirement of an AFS licence to provide advice to existing clients relating to the COVID-19 early release scheme.

ASIC has also issued a temporary no-action position for superannuation trustees to expand the scope of personal advice that may be provided by, or on behalf of, the superannuation trustee as ‘intra-fund advice’ ie advice that is charged to the superannuation  fund.

ASIC is also delaying certain work to reduce the burden on financial advisers including the findings of a review about deduction of advice fees from superannuation accounts, and information gathering about life insurance advice and grandfathered conflicted remuneration.

ASIC has however emphasised the importance of maintaining compliance including with general obligations, breach reporting, supervision of representatives and keeping adequate records to demonstrate compliance whatever medium is used to provide advice. It will be conducting surveillance to ensure trustees and advisers are acting in their clients and members’ best interests.

What’s Changed?

ASIC is seeking to recognise the strains of providing advice during the pandemic by reducing regulatory burdens.

ASIC’s COVID-19 Advice-related Relief instrument provides a number of exemptions from the existing law under particular circumstances and conditions.

Exemption – ROA for COVID-19 early release of superannuation

The instrument allows advice about the “COVID-19 early release of superannuation scheme” to be given with only a record of advice rather than a SoA subject to these conditions:

• the exemption applies in these circumstances:
  • the advice relates to the early release on a COVID-19 related ground;
  • the provision of advice is not in the course of, or because of, any unsolicited contact with the client in relation to early release of super; and
  • the fee for advice does not exceed $300.
• the adviser must keep a record of advice which sets out:
  • brief particulars of the recommendation made and the basis on which it is made, including:
    • whether the client satisfies a COVID-19 early release ground in relation to the product;
    • whether the client should apply for early release in relation to the product, in part or in full, and why. This is based on the client’s relevant personal circumstances (determined having regard to the client’s objectives, financial situation and needs as currently known to the adviser);
  • if early release is recommended in relation to a product:
    • the name of the fund; and
    • the implications to the client of the early release in relation to the product.
• the ‘providing entity’ must:
  • give the client the RoA as as practicable and before any connected financial service is provided by the adviser (eg a trustee who provides advice ends a membership on paying on the member’s whole balance); and
  • if the advice is first given verbally, at that time it must give the information (that would be required in an SoA) about actual or potential conflicts and remuneration that might reasonably influence the advice.

(these are offence provisions)

This may be applicable to an intra-fund advice scenario and can be relied on in conjunction with ASIC’s no-action position on intra-fund advice (discussed below). However it can also apply to existing or previous clients and also for advisers unconnected to a superannuation fund, and where a fee is payable by the client.

The ‘unsolicited contact’ requirement is in the spirit of the “no hawking of superannuation products” reforms pursuant to Royal Commission recommendation 3.4. In the Explanatory Statement, ASIC states “for example, no cold calling” and elaborates that any means of contact will be unsolicited unless it takes place in response to a “positive, clear and informed request from the client for financial product advice about the COVID-19 early release scheme.”

ASIC gives examples of “implications” of early release required to be advised as (including) impact on any insurance cover and the impact of withdrawal on retirement benefits.

Relief – ROA for urgent COVID related advice (existing clients)

This measure is designed for circumstances where an existing client’s personal circumstances have changed (due to COVID-19) and so an SoA would usually be required.

ASIC has given targeted relief to allow use of a record of advice even though:

• the client’s personal circumstances may have changed as a result of COVID-19 pandemic; or
• the client sees an adviser from the same AFS licensee or practice, but not their original financial adviser.

The relief is subject to these conditions:

• the client expressly instructs that they require advice because of the adverse economic effects of COVID-19;
• the provider reasonably considers that the client requires advice for this reason;
• the client sees the same financial adviser or a financial adviser from the same AFS licensee or practice;
• the advice is in relation to a class of product(s) that the client was given an SoA in relation to previously by the providing entity (or associated providing entity); and
• the adviser gives the RoA to the client and keeps a copy of it.

In this context “class of product” means superannuation, managed investments, life insurance etc.

The RoA must contain the following content:

• a brief explanation of the change in the client’s relevant personal circumstances in relation to the COVID-19 advice;
• brief particulars of the recommendations being made and the basis of those recommendations; and
• brief particulars of s947D replacement product disclosure if product replacement advice is given. (Note: moving funds from super to a bank account would amount to a replacement of product).

The ‘providing entity’ must:

• give the client the RoA as soon as practicable and before any financial services connected to the advice (such as arranging for a client to seek to withdraw all their account balance in the superannuation fund):
• if the RoA is not given when the advice is first given (for example the advice is given verbally), at that time it must give:
  • the information (that would be required in an SoA) about actual or potential conflicts and remuneration that might reasonably influence the advice and the information that would be required by s947D about replacement financial products as applicable.

(these are offence provisions).

Relief – ‘Urgent Advice’ measure

The Instrument allows 30 business days (rather than 5) to provide an SoA after a “time critical case” of COVID-19 personal advice is given.

Under the “time critical case” exemption in s946C, the adviser can assist the client to implement the advice before giving an SoA.

This relief is only available in these circumstances:

• the client instructs that the advice is required urgently because of the adverse economic effects of COVID-19
• the adviser reasonably considers the advice is required urgently for this reason
• the providing entity (or a providing entity under the same AFS Licence) has previously given an SoA that sets out the client’s relevant personal circumstances in relation to the class of financial products;
• the advice is in relation to a class of financial products to which the previous advice related.

The RoA must contain the following content:

• a brief explanation of the changes in the client’s relevant personal circumstances in relation to the advice;
• brief particulars of the recommendations made to the client and the basis of those recommendations;
• s947D replacement product disclosure if product replacement advice is given. (Note: moving funds from super or a managed fund to a bank account would amount to a replacement of product).

The ‘providing entity’ must give the client as soon as practicable and before providing a financial service connected to the advice (for example by arranging for a disposal of managed investment products):

• a copy of the RoA
• if the advice is first given verbally, at that time it must give:
  • the information (that would be required in an SoA) about actual or potential conflicts and remuneration that might reasonably influence the advice; and
  • s947D replacement product disclosure

(these are offence provisions).

The relief is also subject to the condition that the adviser take all reasonable steps to give the SoA as soon as practicable.

Relief – Registered tax agents

The Instrument relieves a registered tax agent that is neither an AFS licensee or nor representative of a licensee from requiring an AFS licence in relation to COVID-19 advice about the early release scheme.

The relief is similar to the existing client relief for trustees and advisers. It is provided in these circumstances:

• the tax agent has previously (before 14 April 2020) provided a tax agent service to the client.
• the advice is not because of unsolicited contact with the client in relation to early release.
• the fee charged for the advice does not exceed $300.
• the tax agent makes a record of the advice with brief particulars whether the client satisfies is eligible for early release, whether the client should apply and why, the name of the fund and the implications to the client of early release.
• the tax agent gives the client a copy of the record of advice and information about any actual or potential conflicts that are capable of influencing the advice as soon as practicable after the advice and before the agent arranges the early release if it results in the membership ceasing.

‘No action’ on intra-fund charging

A ‘no-action’ position is a statement of regulatory intent and is specific to the facts and circumstances.

ASIC’s no action position means that ASIC will not take action in relation to breaches of the intra-fund charging rules (s99F SIS) from 14 April to 24 September 2020 in the circumstances and subject to the conditions below.

Circumstances:

• personal advice is given by the trustee or a person acting as employee or under an arrangement with the trustee;
• the advice is directly focused on advising the member on whether the member should access the COVID-19 early release scheme and is not about other topics or subject matter; and
• the advice addresses the following as relevant for the member:
  • the member’s need for the early release of superannuation monies (e.g. cashflow and budgeting relevant for the member)
  • government benefits available to the member (e.g. JobKeeper Payment, income support payments, household support payments, etc.)
  • the member’s alternative sources of support or relief (e.g. loan or rent relief, existing financial resources and access to the COVID-19 early release scheme from another superannuation fund)
  • the impact on the member’s retirement income by accessing the COVID-19 early release scheme,

including making reference to household circumstances as needed to provide appropriate advice to the member.

Conditions:

• The trustee must inform ASIC that it will rely on the no-action position by emailing [email protected] either before first relying on the no-action position or within 30 days of first relying on it.
• The member must have sought the advice rather than the trustee or other relevant provider initiating the advice.
• Before providing the advice, the advice provider must:
  • determine that, in the advice provider’s opinion, the member is likely to be eligible for the COVID-19 early release scheme;
  • clearly describe the scope of the advice;
  • make the member aware of relevant public factual information and existing general advice of the fund concerning the COVID-19 early release scheme;
  • confirm that notwithstanding this information and the advice, the member wishes to seek more advice;
• If a trustee engages an external provider to provide the advice, this must be done at a cost to the fund consistent with the trustee’s best interest duty and in line with the expectation that the only advice to be given is directly related to whether to access the COVID-19 early release scheme.

ASIC’s no action position appears to be for avoidance of doubt whether an adviser may need to step outside the existing intra-fund advice rules so it can take into account the financial position of the member’s household. However we do not see that there is any restriction on taking account all relevant information in giving advice including matters relating to the financial position of other members of the person’s household, and indeed it would often be necessary to do so in order to meet the duty to act in the best interests of the advice recipient. What is not permitted to be charged to the fund is an opinion or recommendation about another financial product (with limited exceptions), such as a recommendation to withdraw money from another superannuation fund, whether held by the member or a member of their household.  ASIC’s no action position does not apply to such advice..

ASIC’s temporary no action position for superannuation trustees is provided here

Other ASIC expectations

While it is not a condition of the relief, ASIC also expects trustees to help members by taking steps such as the following without having to rely on the relief:

• directing members to the moneysmart website and ATO website
• provide factual information about the application process and various Government COVID-19 assistance programs
• make them aware of services of financial counsellors
• provide general advice or intra-fund advice.

ASIC surveillance

In its Media Release 2020/085 ASIC says that it will conduct surveillance activities to monitor the advice provided under this relief, to ensure that advisers, registered tax agents and superannuation trustees are acting in the interests of their clients and members.

ASIC regulatory priorities

The advice about regulatory priorities and ASIC relief is here and here.

It is delaying its work on life insurance advice and grandfathered conflicted remuneration and so will not requiring files or other data from licensees during this time. However ASIC does expect issuers to turn off grandfathered conflicted remuneration arrangements as soon as possible and no later than 1 January 2021 and pass on rebates or reductions in fees as soon as possible.

Impact on Trustees

Demand

It is not year clear what demand there will be for personal financial advice on COVID-19 early access. Member may simply rely on general information and advice to make their own decision and apply directly to the ATO. There may be greater demand for advice in relation to the second round of applications from 1 July 2020 when the perceived need for early access may not be as great as it is now.

Time pressure

Trustees have little time to develop procedures to ensure the complex conditions and requirements are met so it can take advantage of the relief.

Advice on early access may occur concurrently with an application, in which case, As a ‘providing entity’, Trustees will have to ensure an RoA is provided as soon as practicable and before they provide a further financial service connected to the advice.  This would include a case where a member in the trustee’s fund is fully paid out  and ceases membership, as they will then have disposed of the member’s superannuation product.

COVID-19 advice must also still comply with the broader best interests requirements and so a triage will be necessary to ensure clients are in the right channel, being the expanded intra-fund RoA advice channel or the non-intrafund RoA model or another channel.

Adviser training

Advisers will need to be across all the Government COVID-19 benefits available, so Trustees face the enormous challenge of ensuring the adviser has the technical competence to provide the advice. Trustees will need to ensure there are adequate materials to enable advisors to ask the right questions about eligibility and identify public factual information to enable the conditions to be met.

Scope of advice

Licensees will need to ensure the advice scope meets the relief requirements as well as the best interests and FASEA requirements which may require consideration of broader factors and longer term considerations.

Conflicts

Advisers employed by or acting under an arrangement with a trustee will need to think carefully about what conflict of duty may arise in providing the advice, in light of the impact significant volume of withdrawals on other members of the fund and on the trustee itself. Any advice not to withdraw the full amount of funds from such advisers may be scrutinised carefully by ASIC.

The conflicts related disclosures required under s 946C and the corresponding terms of the relief for time critical advice would usually be covered under an FSG, however this may not be the case for COVID-19 advice. Trustee licensees should consider whether other interests need to be disclosed under s946C or under its general conflicts management obligation.

Demonstrating compliance

Records must be kept of the advice, and the associated training, procedures and controls to enable trustees to demonstrate they have met the requirements for the no action position and met their other obligations including that any advice is in the best interests of the member.

Unsolicited

Trustees have contacted members by email or physical mail indicating that members may contact the fund for advice may need to consider whether any responses by members could be considered not to be an unsolicited contact and so disqualifying them from relying on the new clients RoA exemption. This arises because an RoA can’t be used if the advice was ‘because of’ an unsolicited contact.

The relief appears to be structured to reflect the hawking prohibitions in the Corporations Act and proposed amendments to the hawking laws in line with the Royal Commission recommendation. However unlike the current or proposed legislation the advice can’t be because of any kind of contact, not merely a contact which creates an expectation of immediate response such as personal meeting, telephone or instant messaging. It is not clear whether this was intended by ASIC.

It can be argued that where a client in response to an emailout  makes a positive, clear and informed request for advice it breaks the chain of causation so that it can be said that the advice is not then ‘because of’ the early unsolicited emailout.

Ongoing fee arrangements

Particular care will need to be taken relying on this exemption if there is an ongoing fee arrangement, to ensure that any extra amount charged (if any) for early access advice is no more than $300.  Even if more than $300 is payable under the ongoing fee arrangement is no more than $300 extra is charged because of the early access advice, that appears to be meet the condition to allow RoA for  early access advice.