The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Commission) released its final report and the SuperConcepts technical team has assessed the implications for the SMSF sector.
In short, the Commission made no recommendations specifically relating to SMSFs, but the team has identified six recommendations (out of a total of 76 recommendations made by the Commission) which are most likely to impact SMSF service providers and the SMSF sector more broadly.
1. Royal Commission recommendation #2.1 - Annual fee renewals
The Commissioner has recommended that the law be amended to ensure that advisers seek an annual renewal from all clients.
The Government has agreed to this recommendation and will legislate that advisers will need to notify customers in writing the exact services they will provide, and the cost of each service provided.
Advisers will need to do this on an annual basis.
SMSF sector impact
SMSF service providers may need to seek clarification about the obligations, if any, to ensure the annual fee renewal requirement has been satisfied before ongoing fees can be deducted from an SMSF and paid to the adviser.
2. Royal Commission recommendation #2.4 - Grandfathered commissions
Grandfathered provisions for conflicted remuneration should be repealed as soon as reasonably practical.
The Government agrees to end grandfathering of conflicted remuneration effective from 1 January 2021.
From 1 January 2021, payments of any previously grandfathered conflicted remuneration that are still in contracts will be required to be rebated to applicable clients where the client can reasonably be identified.
The Government will commission ASIC to monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration for the period 1 July 2019 to 1 January 2021.
SMSF sector impact
This may impact some ongoing fee arrangements put in place pre FOFA (i.e. before 1 July 2013).
SMSF service providers will need to review fee collection arrangements in place with advisers which may constitute a grandfathered commission arrangement.
If any grandfathered commission arrangements are identified, the process to terminate this fee arrangement by 1 January 2021 will need to begin, as well as ensuring fee arrangements which cannot be terminated are rebated to the client from 1 January 2021.
This measure may also impact on trail commission payments that SMSF service providers may be receiving from third parties if the arrangement was put in place before 1 July 2013.