Trustee obligations relating to deduction of advice fees

There has been much discussion relating to this topic but as is often the case-more heat than light. In particular, questions have arisen which this paper seeks to answer, principally around:

• the extent to which a trustee must check/monitor/supervise the advice provided by a third-party licensee/adviser
• the extent to which a trustee must critically assess the quality of the advice and
• the extent to which a trustee must critically assess the extent of the fees charged by the advisers including value for money.

A useful starting point in this context is a snapshot of the trustee's relevant overarching obligations relevant to expending fund monies
towards the provision of advice.

The principal obligations are as follows:

• the relevant obligations under the statutory covenants contained in section 52 of the SIS Act being:
  • the duty to exercise reasonable care (section 52(2)(b))
  • the duty to perform the trustee's duties and powers in the best financial interests of the beneficiaries (section 52(2)(c))
  • the obligations under SIS Regulation 5.02 to ensure that the costs to be charged against a member's benefits are distributed in a fair and reasonable manner
  • the obligation under the Corporations Act 2001 to ensure that the financial service of providing superannuation services is carried out efficiently, honestly and fairly (section 912A(1)(a)).
• the obligation under section 62 of the SIS Act to ensure that the fund is maintained solely for certain specified retirement purposes.

It seems to the author that the outworkings of these principal obligations, translated into the present context are as follows:

• standards of care and reasonableness so translated mean that the trustee must achieve a certain level of satisfaction as to the services being provided by a third-party adviser
• this does not mean that a trustee must only pay advice related expenses from the fund if they are reasonable; it would be more accurate to say that the trustee must ensure expenditure from the fund is appropriate
• in relation to the sole purpose test, the trustee is under an obligation cast in terms of ensuring the specified statutory retirement purposes are met; this should not be interpreted in our opinion as meaning that a trustee is strictly liable if an adviser's conduct cuts against the grain of the test; for example, where an adviser might wrongfully charge fees for non-superannuation related advice. In other words, a fund can be maintained for the specified purposes even if some application of fund monies is technically outside of the flags set by section 62 of the SIS Act, particularly if the trustee is unaware of, and has taken precautions against, this occurring
• case law has established that the best interest covenant is primarily process driven and not outcomes driven. In our assessment, it does not add to the equation here in the sense of dictating additional measures beyond the ones required by the other covenants referred to.