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Super already pays for advice
A day after the Financial Planning Association (FPA) called the Government to allow members to use their super account to pay for financial advice, a financial planner has pointed out to an existing mechanism allowing this practice.
In its pre-Budget submission, the FPA urged the Government to allow consumers to use their superannuation accounts to pay advice fees, as long as the advice related to superannuation.
The association recommended this be done through amending the sole purpose test, using salary sacrifice or government co-contribution.
However, Perth-based financial planner Wayne Leggett from Paramount Wealth Management told Super Review’s sister publication Money Management he already draws advice fee from his clients’ super accounts using a mechanism which has existed for years.
His clients are asked to sign a fee authority form which permits the planner to deduct money from the superannuation fund.
“As long as the client authorises the payment, the fee is usually paid,” Leggett said.
“It is a 'carry-over’ from the days (not too long ago) when entry fees were charged, the quantum of which was often at adviser discretion.”
According to financial services lawyer, Rockwell Olivier’s Peter Bobbin, this practice is in part permissible under the current regime, and the advice doesn’t have to be directly related to superannuation.
He said some super funds have arrangements or written agreements with their clients which permit them to pay their financial planner by using their superannuation balance.
“If a person has $250,000 in super and they’re 60, they don’t have enough to live alone on super - they’ll need and be entitled to, social security,” Bobbin said.
“It’s very reasonable to then look at their super balance, investment and strategy in a manner which will supplement the age pension - the age pension is relevant in this context,” he added.
“This is the case where advice might talk a quite a bit about age pension and that is permissible, provided that you’ve got that link into superannuation.”
However, if a planner is advising on household budget, then it would be in breach of the Superannuation Industry (Supervision) Act to draw the advice fee from the client’s superannuation balance.
Compliance and governance specialist Kate Humphries of Pathway Licensee Services said the SIS Act explicitly says that superannuation is there to make sure consumers have enough to live on in retirement.
“So, unless the advice is very specific to superannuation, it [drawing the advice fee from super] would probably be in breach of the SIS Act,” Humphries said.
While there is a mechanism for planners to be paid for their advice through their client’s super, Bobbin said the FPA’s proposals would significantly simplify this process and provide much needed clarity.
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