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Advisers warned on sole purpose breach with advice fees

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By mbrownlee
February 15 2019
1 minute read
5 View Comments
David Oon
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With Kenneth Hayne identifying the payment of certain advice fees from super as a problem area, SMSF professionals should be cautious around how they scope and apportion fees to superannuation, warns a compliance lawyer.

Speaking to SMSF Adviser, Selfmade head of legal and compliance David Oon said that in the final report of the royal commission, Commissioner Hayne noted concerns about the types of advice fees being paid from super funds.

Mr Hayne said that the advice fees being paid from super funds were often for advice that was too broad or covered too many topics, which was contrary to the sole purpose test.

 
 

Given that the sole purpose in the SIS Act applies equally to APRA funds and SMSFs, this could also have implications for advisers with SMSF clients, Mr Oon said.

“What is allowed under the sole purpose test is broadly advice relating to death benefits and retirement benefits,” he explained.

“This may include such matters as consolidation of superannuation accounts, selection of superannuation funds or products, or asset allocations within a fund. It would not include broad advice on how the member might best provide for their retirement or maximise their wealth generally.”

Mr Oon said that the commissioner seems to be reminding advisers that advice fees and any other expenses that are taken from super must solely relate to paying death benefit and benefits on retirement.

“The sole purpose test doesn’t mention retirement or wealth planning generally, so the commissioner has taken aim at advice paid for that from super was too broad in scope,” he said.

While the commissioner’s comments were focused on APRA-regulated funds, Justin Porrins from DPM Financial Services said that the same problem could still occur in the context of SMSFs.

“Advisers must be careful to scope advice clearly and apportion fees appropriately across all relevant entities,” he said.

“From a policy perspective, however, there shouldn’t be a big problem paying for broader advice through super, especially since it should lead to an increase in overall wealth.”

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Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.

You can email Miranda on: miranda.brownlee@momentummedia.com.au

Comments (5)

  • avatar
    Speak to your accountant, you are not normally allowed a deduction for the initial advice. however you MAY be able to claim for some of the ongoing component.
    0
  • avatar
    And yet ISA can spend hundreds of millions on political and purposefully erroneous advertising with member funds, and completely escapes any issues around sole purpose. Give me a break!
    0
  • avatar
    Advisers have to issue a Statement of Advice that considers the client's personal overall situation. How is it possible to apportion the advice fee, especially if the sole or main purpose of the advice being sought by the client related to superannuation. Somewhere between the application of the sole purpose test and the reality of the advice regime, there is a disconnect.
    0
  • avatar
    My wife and I are considering retiring on 1st July,having both reached the retirement age and wish to find out if seeking professional advice on retirement benefits and related matters
    will qualify for deductions in our SMSF?
    0
    • avatar
      I would say yes as long as it directly relates to the retirement benefits that will be paid from the fund and the investments held be the fund.
      0
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