Are intra-fund advisers, exempt from the DDO regime?
“Generally, intra-fund advice refers to limited or scaled personal advice that a superannuation trustee can provide to a member about their superannuation account without an additional fee being charged to the individual member. ”
— ASIC, “Clarifying intra-fund advice”, Friday 4 December 2020
A simple plan
Recently, an intra-fund adviser asserted (based on his Licensee’s direction) that he had no obligation to consider the fund’s Target Market Determination (TMD) before providing advice about fund options.
This was volunteered after he confirmed that the Licensee had not implemented any new processes, nor taken any reasonable steps, to meet its obligations under the new Design and Distribution Regime.
It was a confidently asserted position but, unfortunately for the adviser, we couldn’t see any specific exclusion from DDO obligations for intra-fund advice in either RG274 or s994B(3)
Although there’s no specific exclusion for “intra-fund advice”, consistent with s994B(3) and RG 274.21 a Fund’s mysuper option, and any defined benefit option, are excluded from the DDO obligations.
The DDO regulations specifically exclude MySuper and defined benefit interests, which means that the regime will apply only to choice and retirement income products. Remember that MySuper products were excluded on the basis they were already subject to product-specific rules under the Superannuation Industry (Supervision) Act.
Defined benefit interests were excluded on the basis that they are generally closed or highly restricted (and therefore unlikely to be inappropriately recommended. Eligible Rollover Funds are excluded.
Unless the Fund is excluded on these bases, the adviser has a responsibility to take reasonable steps to consider, and comply with, the Funds’ Target Market Determination.
“Critics have said that intra-fund advice is held to less demanding legal standards than other forms of personal advice. However, advisers giving intra-fund advice must comply with the full range of consumer protection requirements in the Corporations Act 2001. ASIC holds intra-fund advice to the same standards and stringent rules as other personal advice. Accordingly, financial advisers must act in the best interests of their client and comply with related obligations, regardless of whether they are providing intra-fund advice or other personal advice.”
— ASIC, “Clarifying intra-fund advice”, Friday 4 December 2020
So, on our reading, the adviser providing personal advice (that is also intra-fund advice) had an obligation to consider the TMD the same way he considered the product research that underpinned his recommendation.
It appeared, in this case, that his recommendation may have overlooked both the DDO obligations and also the requirement for his intra-fund advice to formally satisfy the BID, prioritise clients interests, be appropriate and avoid conflicted remuneration.
Thankfully, ASIC are taking a facilitative approach to the DDO reforms so the Licensee has time to correct its simple misunderstanding of the application of the new law.
