Australian financial advisors should take heed of a recent announcement by ASIC targeting poor superannuation advice. The warning follows the identification of multiple instances of breaches particularly surrounding financial advice in respect of superannuation contributions or superannuation rollover which resulted in clients paying significant tax bills owing to their exceedance of superannuation contribution caps.
ASIC is urging financial advisors to ensure they are correctly identifying their clients’ personal circumstances with relation to superannuation caps to ensure that their best interests are being met.
A summary of super contribution caps
Contribution caps define the maximum amount a person can contribute to their superannuation each financial year without triggering additional taxes. The cap, and any extra tax payable, depends on whether these contributions are concessional (before tax) or non-concessional (after tax).
The untaxed plan cap refers to the limit on contributions to untaxed superannuation funds that are taxed at concessional rates. Any contributions above this cap are taxed at the highest marginal rate.
Financial Services and Credit Panel
Alongside ASIC’s existing decision-making processes, the Financial Services and Credit Panel (FSCP) has been convened to operate alongside ASIC in targeting financial advisors who have subsequently failed to comply with their duties to act in their clients’ best interests. As a result, between July and October 2024, the FSCP has:
- Provided a written reprimand to two financial advisors owing to failures to comply with the Code of Ethics’ values of diligence and competence.
- Issued an education order to one financial advisor to undertake “at least five hours of continuing professional education…in the next 12 months”.
- Issued a written direction to one advisor to appoint an independent party to audit their next 10 pieces of advice and submit to ASIC a report detailing their compliance.
ASIC has further warned that it will continue to refer advisors to the FSCP for misconduct. Where the FSCP identifies that financial advisors have been involved in thematic misconduct, regulatory action may be taken.
Better monitoring by AFS licensees
Aside from urging advisors to act in their clients’ best interests, ASIC recommends that AFS licensees monitor their representatives more closely to ensure that they are adequately trained to give appropriate superannuation advice, to maintain the relevant standards and to develop arrangements for monitoring their representatives.
From an insurance perspective, it is important to recognise the claims exposure which arises from misconduct in the provision of superannuation advice, and how best to ensure coverage in the event of a claim.
Professional Indemnity policies will respond to civil liability claims made by third parties (clients) in relation to the negligent provision of your professional services including the provision of financial advice. The same policy may also cover the legal costs associated with defending any regulatory action or investigative action taken by a regulatory body such as ASIC or a sitting panel convened by ASIC.
Get in touch with a Bellrock Advisor to obtain tailored advice on risk considerations for financial advisors.
