Introduction of 'Client Advice Record' and clarification on superannuation trustees' advice topics 8 min read
Treasury has released a consultation draft Bill to implement part of tranche 2 of the Government's response to the Quality of Advice Review (QAR).
The Bill would:
- replace Statements of Advice with a very similar 'Client Advice Record';
- clarify and slightly expand the advice topics superannuation trustees can collectively charge for; and
- give relief to superannuation trustees from the personal advice rules when they send 'targeted superannuation prompts' to members.
Superannuation trustees might welcome the special treatment, but the Bill has little to offer other advice providers, insurers or banks.
The draft Bill does not include the most significant parts of the tranche 2 reforms—the proposed changes to the best interests duty and the new class of adviser. Draft legislation on these changes is still being worked on, and will be combined with the released draft Bill and introduced as a single package. The current consultation closes on 2 May 2025.
In this Insight¸ we share our thoughts on the draft bill and how it might affect superannuation trustees and their members.
What the Bill covers
The draft Bill will, if legislated in its current form:
- replace statements of advice (SOAs) with 'client advice records'
- allow superannuation funds to give slightly more intra-fund advice (collectively charged personal advice)
- allow superannuation funds to provide 'targeted superannuation prompts' under general advice laws.
The draft Bill has been released together with a document entitled 'Advice through superannuation', and this is what the draft Bill is largely about—making it easier for trustees of superannuation funds to provide advice to their members. It may help trustees comply with their retirement income covenant, but we are less confident it will help them help their members.
The QAR recommended that the requirement to give a client an SOA be replaced by obligations for providers to keep a record of the personal advice they have given and to give a client a written record of personal advice on request. This was not because the SOA requirements were too onerous and technical, but because SOAs were not serving their purpose—they were often unreliable and frequently unwanted.
The Government did not accept this recommendation—maintaining the value of a written record of advice, although it did accept industry submissions that statements of advice were too costly to prepare and too long, and said it would help by requiring 'advisers to give the client a clear, concise and fit-for-purpose advice record'.
The draft bill does not do this. The Corporations Act will require a person who provides personal advice to a retail client to give the client a client advice record (CAR) that sets out the advice, the scope of the advice, the reasons for the advice, the costs of providing the advice, information about remuneration and associations and how to complain. Further prescriptive content requirements will apply where the advice is to dispose of one financial product and invest in another.
The draft explanatory statement says: 'The intention is to reduce the cost of providing advice while ensuring clients receive helpful and accessible information that allows them to make informed financial decisions'. It is hard to see how replacing an SOA with a CAR with effectively the same content requirements will reduce the cost of providing advice or ensure clients receive information that is more helpful than the information contained in an SOA today.
Advice providers will have to revise their SOA templates to refer to a 'Client Advice Record' and, to some extent, to ensure the new content requirements are complied with. We think these changes will likely make little if any difference to the way advisers provide advice or what clients receive by way of disclosure. Advisers will still likely err on the side of giving clients more rather than less even if this is not what clients want or find useful.
There will continue to be an exception for advice relating to basic deposit products or non-cash payments relating to basic deposit products.
The changes would commence 12 months after Royal Assent.
The QAR recommended that superannuation fund trustees should be able to provide personal advice to their members about their interests in the fund, taking into account the member’s personal circumstances, including their family situation and social security entitlements if that is relevant to the advice. The review also recommended removing the restrictions on collective charging of fees.
In its response, the Government said it would clarify the topics for which superannuation funds can charge for advice and the circumstances they can consider in providing advice about a member’s interest in the fund, and to allow collective charging for advice on these topics. The Bill amends section 99F of the SIS Act to enable regulations to be made to specify circumstances in which advice will be taken to relate to the member's interest in the fund.
The 'Advice through superannuation' document released with the draft Bill sets out proposed permitted advice topics (superannuation contributions, investment options, insurance held through superannuation, and retirement income), and permitted circumstances that may be taken into account in giving advice (household cashflow and income, household assets outside super, financial position of spouse, household debts and liabilities, and eligibility for government benefits). It also lists proposed 'disallowed topics' that are taken not to relate to the member's interest in the fund (purchase or disposal of assets held outside super, 'holistic financial planning' and estate and tax planning).
The proposed rules broadly align with the existing position under the law, although having the topics specified in regulations might give trustees more confidence about giving intra-fund advice.
however, as is the case now, the intra-fund advice rules will continue to be a prohibition, not permission, and they will continue not to provide any relief from other obligations. Therefore, trustees will also need to continue to comply with the other charging rules, the best financial interests duty, the sole purpose test and the requirement to allocate costs in a fair and reasonable manner across members.
The QAR recommended that more financial product advice be treated as personal advice. The purpose was to improve the quality of advice provided to consumers by requiring providers to use the information they had about their customers when they gave them financial product advice. By using that information they would be in a better position to provide their customers with good advice. This was the second limb of the recommendations designed to improve the quality of advice available to consumers.
Instead, the Bill will provide a new exception to personal advice for superannuation funds providing members with 'targeted superannuation prompts'. If the new requirements for such prompts are complied with, personal advice given through the prompts will be treated as general advice.
Prompts will need to comply strictly with new requirements, including that they contain 'strategic advice about the types of superannuation products that are suited to the class of members', rather than about specific products offered by the fund. This seems intended to assist trustees to comply with the retirement income covenant, and specifically to be able to prompt a 'class of members entering the retirement phase that they should consider annuitising a portion of their balance'. But trustees will not be able to refer to a specific product—even if they offer members access to a specific annuity product through their fund. Members will need to work out what products are available on their own. Prompts can also be 'about the settings of existing interests the members have in the superannuation fund' such as contributions, insurance cover, rates of payment of income streams or changing investment options.
There are prescriptive requirements trustees will need to comply with to come within the exception—in particular they will need to have a written 'assessment framework' which complies with certain process-driven requirements before sending prompts, and will need to give new statements and warnings likely in the form of a long disclaimer. Superannuation prompts will need to be 'appropriately targeted', but this will require them to be aligned with the 'assessment framework' rather than being intended to achieve any particular outcome for members.
Commissioner Hayne in his Final Report said: 'it is time to start reducing the number and the area of operation of special rules, exceptions and carve outs. Reducing their number and their area of operation is itself a large step towards simplification. Not only that, it leaves less room for ‘gaming’ the system by forcing events or transactions into exceptional boxes not intended to contain them'. The proposed exception for targeted superannuation prompts goes in the opposite direction. While it might be welcomed by some trustees, it complicates the existing rules by providing piecemeal relief for one sector and only in limited circumstances.
Given the restrictions, it is questionable whether it will provide any useful relief even to superannuation trustees. It also might make other providers worry about ASIC's existing guidance that advice providers 'can use personal information about a client to give general advice that is more relevant to a client' without this being treated as personal advice (RG 244.47). Other product issuers whose clients and customers might equally benefit from 'prompts' will have to continue to grapple with the existing law under which a prompt may be classified as personal or general advice, or merely as information.
Next steps
Consultation on the draft Bill closes on 2 May 2025. There is, therefore, no prospect of it being introduced into Parliament before the next federal election.
Minister Jones has said the Government continues to work on legislation to 'modernise' the best interests duty (including to remove the 'safe harbour' steps) and create a new class of adviser. He indicated that these will be available not only to superannuation trustees but also to life insurers and other financial services licensees 'to expand the supply of quality and affordable advice to consumers'.
The remaining pieces of tranche 2 will be consulted on and combined with the draft legislation released on Friday to be introduced into Parliament as a single package. No timing has been provided for the further consultation.