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I have an SOA question:
Situation:
You are giving limited advice in superannuation consolidation only. The SOA says its limited to super and not insurance/estate planning etc etc etc.
The SOA in a nutshell is: you have 4 funds, we recommend you consolidate it into 1 fund. The SOA does say words to the effect of: if you have insurance inside these funds do a partial rollover to keep your insurance.
I was told that by telling people to do a partial rollover to maintain insurance, this is considered insurance advice and I cannot put in the SOA we did not give insurance advice and tell people to do a partial rollover, that should just be left out. However, I do not want people to a full rollover and lose their insurance.
Ideally I would like to people to get advice around super and insurance at the same time, so it can all be resolved, however that’s not the topic at hand. what I want to know, is – in an SOA limited to super consolidation only is recommending a partial rollover to keep their insurance considered to also include insurance advice?
Firstly are you meeting the best interest duty? Is the client better off in Product A or B? This should be your initial justification before moving the funds and trying to ignore the cover.
See ASIC’s summary on super switching http://asic.gov.au/regulatory-resources/superannuation-funds/superannuation-advice/super-switching-advice-complying-with-your-obligations-info-182/#soa
However, my old licensee would see this as still a recommendation to maintain insurance much like if you were recommending maintaining/holding an investment allocation to a fund. When reviewing the from fund you are reviewing the whole fund not just the investment component.
If you are still of the opinion to undertake a partial rollover consider the facts: <span style=”display: inline !important; float: none; background-color: transparent; color: #333333; font-family: ‘lucida_sans_unicoderegular’,arial; font-size: 12px; font-style: normal; font-variant: normal; font-weight: 400; letter-spacing: normal; line-height: 16px; orphans: 2; text-align: left; text-decoration: none; text-indent: 0px; text-transform: none; -webkit-text-stroke-width: 0px; white-space: normal; word-spacing: 0px;”>is this in the best interest of the client to have a secondary fund which they will need to top up to maintain the insurance costs? Does the fund require regular contributions to maintain the cover? how much of a balance do you determine to leave behind? Notably there are increased risks of loss of insurance should the fund no longer have sufficient funds to pay premiums hence there is a duty of care to make the client aware of these positions.</span><b></b><i></i>
Can the cover be replaced externally? Are they medically fit to undertake revised cover?
Why don’t you review the insurance and seek approval to also advise on the external fund from your licensee?
Regards
Peter
Hi Peter,
the point the questions is not if it’s in the clients Best interest, or what the advice should be, the question is, if you recommend a partial rollover to keep insurance, does that constitute insurance advise – like you said is this considered to have been a recommendation for the client to keep their insurance and therefore cannot limit the SOA to superannuation advice only.
Yes my apologies.. Was late at night and I was trying to answer your question quickly and misread the question.
My last licensee didn’t have a fond usage of the scoped(scaled) advice and requested all items scoped out to be justified and agreed by the client and when would they next be reviewed/addressed. Anyway, if you explicity state in the SOA that you are only addressing superannuation and relating this to the benefits the client receives then you would have a case to continue. Preferably, you would scope out the insurance advice including other areas not being advised on so the client was aware what they were receiving advice on.
I would recommend and file note that they seek advice at next review around their insurance (essentially to protect you and to ensure they do not risk losing the cover should the super account fall below minimums due to premium deductions). If they prefer not to address it then that’s fine.
SOAs can have a limited scope in such a way that they include consolidation advice but they don’t include life insurance advice. If this was not possible, the entire Limited Licensee regime which commenced on 1 July 2016, would be unworkable.
If the client has agreed to limit the scope to superannuation only, then you can recommend consolidation of the superannuation funds, if you think that’s the best option for the client, after conducting a reasonable investigation into alternatives. However, when recommending consolidation, this is “replacement of product” advice so you need to (amongst other things) warn the client about benefits lost, and significant consequences of acting on the advice. You should provide a clear warning in the SOA that the client should not act on your advice (ie. Should not consolidate or shut down any superannuation fund) until they have sought advice about the existing life insurance in the existing funds, from a properly authorised adviser. You could even tell them that closing a fund means that they will lose any existing life insurance in that fund, and it may be difficult to obtain new life insurance on similar terms (this is a statement of fact).
On a side note, if you are a representative of a Limited Licensee, you can only give consolidation advice if you are also considering recommending that the person set up an SMSF as part of that advice (you may decide that an SMSF is not appropriate and that consolidating into an existing public offer fund is better, after conducting the research).
Also, if you’re a limited licensee, we have a support service, offered in conjunction with our partners at http://www.L4a.com.au. You should check out their website. If you’re a full licensee, we have SOA templates and other relevant services that may interest you at http://www.hnlaw.com.au.
Author: Paul Derham (Partner)
Co-contributor: Hugo Sasse (Law Clerk)
When writing an SOA strictly on super consolidation only – no insurance advice. Do I need to include what insurance the current funds have in the SOA? I would add which funds hold insurance via a simple yes or no in a table outlining their current funds and balances etc so the client knows which funds they need to investigate or look into themselves.
My licencee is saying I need to include the amount of cover, premiums etc as part of the super only SOA, however my argument is if its super only, insurance information is not relevant and if it is added, does it some what imply that insurance advice is being given/considered? thoughts?
