Advice fees

In April 2019 and July 2021, the regulators ASIC and APRA jointly issued letters to all super trustees regarding the deduction of advice fees. In May 2024, ASIC issued Report 781 titled: Review of Superannuation Trustee Practices: Protecting Members from Harmful Advice Charges. The report highlights the importance of trustees ensuring that advice fee charges against member balances are consistent with consent given by their members and outlines the controls trustees can apply to comply with the law and to protect member balances from erosion due to inappropriate advice charges. 

Super fund trustees are obligated to comply with SIS Act requirements, including preservation rules and the sole purpose test, and have a duty to act in the best financial interests of members. 

AIL as an RSE trustee is required to ensure it acts in the best financial interests of members. The regulators, ASIC and APRA, have been clear on their expectations of trustees in ensuring they have appropriate oversight measures in place. CFS will continue to monitor advice fees in line with the thresholds. The thresholds are periodically reviewed to ensure they remain appropriate. 

In all cases, and irrespective of the thresholds, the adviser should ensure that services are provided for the advice fees charged to a members account and that those advice fees are fair and reasonable for the advice provided to the member in respect of their interest in the fund from which the advice fees are being deducted. 

The thresholds are designed to trigger the trustee to review the advice fees being deducted. Once the threshold has been reached the trustee requests further information to assess the advice fees. From there the trustee can assess its comfort with the advice fees based on the relevant circumstances for that member’s account.

Where we’ve been made aware that advice fees have been deducted from a member’s account other than as described above or where services are not being provided for the advice fees charged, we may be required to report this to ASIC.

Where inappropriate deductions have been found to have occurred, the advice fees are generally required to be paid back into the member’s account, including an amount for lost earnings. This is also outlined in the Licensee Terms and is consistent with the regulators expectations.

Yes, advice fees charged in the taxable super (accumulation) environment for personal advice attract a tax deduction which gives rise to a tax benefit. For FirstChoice members, the deduction is passed to members at the time the advice fee is charged resulting in a lower advice fee being deducted from their accounts. In the case of FirstWrap Super members, the tax deduction is factored into the annual member tax calculation which will result in reducing the tax payable by the member. If no tax is payable, the member will receive a tax refund.

As earnings tax does not apply to retirement phase accounts (account-based pension accounts), this tax benefit does not apply.

As super (accumulation) members and pre-retirement (TTR) members receive the benefit of available tax deductions, advice fees must be apportioned between super and retirement pension accounts pursuant to valid consent forms that meet the ASIC consent requirements.

Australian Tax Office ruling TR93/17 outlines that a tax deduction can only be claimed where the advice given is in relation to the product which produces assessable income to the fund, i.e. accumulation phase or pre-retirement pension. As such, expenses incurred in relation to products that do not produce assessable income (retirement phase income streams) are not entitled to a tax deduction therefore do not produce any tax benefit that members can receive.

We implement this by requiring advisers and members to make appropriate declarations in our forms, and by having thresholds on the amount of advice fees charged from members’ accounts.

Examples of scenarios where advice fee apportionment have been incorrectly applied. 

• A member receives advice to consolidate all funds into a super account and then transfers the entire balance to commence an account-based pension. The one-off fee is deducted from only the super account. The one-off fee should be apportioned based on the advice provided and deducted from both the member’s super and account-based pension accounts.

• A member has a super account and account-based pension, and the monthly service fee is only being deducted from the super account. The monthly service fee should be apportioned based on the advice provided and deducted from both the member’s super and account-based pension accounts.

• A member receives advice to establish both a super and an account-based pension at the same time and the initial one-off fee and/or monthly service fee is deducted from only the super account. The one-off fee and the monthly service fee should be apportioned based on the advice provided and deducted from both the member’s super and pension accounts.

It is worth noting there are three common methods used to apportion advice fees:

• Investment amount (FUA)

• Time spent formulating and reviewing the advice 

• Cost associated with a particular strategy

The trustee’s duties and obligations, including the sole purpose test, and the requirement to only deduct costs properly incurred in relation to the superannuation fund means advice fees cannot be deducted from a member’s account for advice received by anyone else.

Advice about insurance held in a different super fund or outside super would be advice beyond the scope of the member’s interest in the super fund and not consistent with the sole purpose test, this is not permitted. 

As this would be advice beyond the scope of the member’s interest in the super fund and not consistent with the sole purpose test, this is not permitted.

We recognise there may be situations where it is appropriate for the trustee to consider an exception to the thresholds. The exception process requires advisers to provide further information so that we can assess the appropriateness of the advice fees, while ensuring we meet our duties to members. We will work with advisers in circumstances where advice fees are outside of the threshold to achieve the right outcome.

Anytime an advice fee is to be increased on an account, you will need to provide a new advice fee consent form, signed by the client. The consent must meet the standard eligibility requirements. Please do not re-use an old form as this cannot be accepted.

We'll generally provide approximately 104 days’ notice. If the advice fees continue to be outside the threshold after the notice period has lapsed, action will be taken to reduce the advice fees. Where an exception has been agreed there will be no action taken to reduce advice fees.

No. CFS communicates the changes to advisers, and as such does not contact your clients when reducing advice fees.

Advice fees must not be deducted from an account in the name of the authorised representative on the account. It is not a permitted arrangement for advisers to charge advice fees from their own CFS account. CFS’s view is that an individual cannot contract with themselves. Furthermore, if advice fees are deducted from a super account in the adviser’s name where they are the authorised representative on the account, this may represent an early release of super.

A family billing group can be made up of a number of members across a number of tax structures. It is not appropriate to allow an advice fee from super for advice to other members in the family. This would not be consistent with the sole purpose test nor the requirement for the advice fees to be for personal advice in relation to the member’s interest in the fund.

CFS caters for dollar-based advice fees to be charged on accounts linked to a margin lending facility and any accounts that have sourced funds by any other form of borrowed money (i.e. an expectation funds need to be repaid). Asset-based (percentage-based) advice fees are not offered on Investor Directed Portfolio Service (IDPS) and investment accounts that hold borrowed funds. This is to eliminate the potential that a percentage-based advice fee is charged on any portion that may lead to a breach of the conflicted remuneration provisions.

An account that is linked to margin lending facility can have the loan amount drawn down at any time. Therefore, even where the loan balance is zero, CFS does not permit percentage-based advice fees to be deducted from these accounts.

To apply a percentage-based advice fee to an account that is linked to a margin loan facility with a zero-balance loan, we ask that you contact the lender to remove the margin loan facility prior to making a request for the advice fee. Once we have been notified by the margin lender that the margin lending facility has been removed from the account, we can accept a request for a percentage-based fee to be added to the account.