The Old Chestnut: Product Replacement

[Archived User]

Dear members

It was suggested to me recently that switching from a super account to a pension account (different PDSs) does not trigger 947D given that the recommendation is based on a strategy. It was also suggested that because the products where offered by the same provider, disclosure of comparative product analysis wasn’t needed as it had nothing to do with the prevention of ‘churning’. Is anyone aware of any creative interpretations of 947D which provide scope for these suggested views, or is the ‘black letter’ approach (one product for another regardless of strategy or provider) still needed?

I couldn’t help noticing some of ASIC’s comments in the new RG175 in relation to switching or product replacement. At RG175.165 it states that switching includes changing investment options. Does this mean that changing investment options (eg within a master fund as opposed to a custodian or wrap structure which do not involve any replacement of product) are now caught, even if it has nothing to do with another PDS?

Thanks for reading and for your interest,

James

[Andrew Ham]

Hi James,

Section 947D applies when you recommend replacing one product with another.  It does not apply to recommendations to change options within the one super fund.  If there are two products involved, it is immaterial that the products are offered by the same provider and not relevant that the advice is considered a ‘strategy’.  The advice to switch from a super account to pension account will be subject to the disclosure requirements of s947D (2) and (3).

RG 175.165 is about SOA content requirements, including but not limited to s947D.  If a change of product is recommended within a master trust arrangement as part of a change of investment option, s947D will apply.  If the structure is such that there is no change of product, the costs and benefits of the change in investment option should be discussed but the broader s947D obligations do not apply.

If you require further information, please feel free to contact our office.

Hope that helps!

Author: Andrew Ham

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