When a financial adviser recommends switching superannuation funds they are required to give you specific information and if they fail to do so this can constitute professional negligence and entitle you to compensation if the switch results in you suffering financial loss.
Specifically, the advisor must tell you about:
- Charges you may incur in respect of the disposal/reduction and acquisition/increase;
- Benefits you may lose as a result of taking the recommended action;
- Information about any other likely significant consequences for you; and
- An explanation of why the change is appropriate for you.
Each of these required disclosures must be provided in a written document called a Statement of Advice which sets out the adviser’s recommendations as well as the particular information required when an adviser recommends a switch.
A financial adviser should take reasonable steps to find out the necessary information, such as asking you for details of your current superannuation and completing research. If the financial adviser does not know, and cannot reasonably find out the necessary information, the Statement of Advice must specifically tell you that.
Charges you may incur
The Statement of Advice should include, among other things, information about any exit fees applying to withdrawal from your existing superannuation fund and any entry and ongoing fees applying to the proposed superannuation fund. Additionally, the Statement of Advice must make clear the adviser has considered your existing superannuation fund.
Benefits you may lose
This requires the adviser to consider and investigate both your existing superannuation fund and the proposed superannuation fund and notify you of any benefits you may lose as result of switching. For example, if the proposed superannuation fund is different in respect of ‘capital security’ than your existing superannuation fund, the adviser must explain this difference to you. There might also be changes to the extent or level of insurance cover you will receive within an alternative superannuation fund. These cases should be both in discussion with you, and detailed in the Statement of Advice
It is insufficient for these disclosures to be overly general or noncommittal in nature. For example, it is inadequate for the adviser to tell you there “may” be a change in the level of investment risk without specifically pointing out if the proposed switch is from a low risk investment option to one with greater risk.
Information about significant consequences
Significant consequences are, broadly speaking, the significant differences between your existing superannuation fund and the proposed superannuation fund that the adviser knows are important to you. For example, it is a ‘significant consequence’ if the recommended investment option is riskier than your existing investment option. Similarly, the loss of comparable insurance cover within a recommended fund amounts to a significant difference. The adviser should provide a comparison of risks in the Statement of Advice. It is not enough for the advisor to just identify the risks of the proposed superannuation fund, these need to be compared with your existing superannuation fund.
Why the change is appropriate
The Financial Planning Association of Australia Rules of Professional Conduct state:
“A member shall not move a client or cause a client to move from an investment to another investment without explanation to the client, in terms the client is likely to understand, the reason for the move. The member must demonstrate that the move is appropriate for the client."
It is not enough for an adviser to tell you the proposed superannuation fund is appropriate for you; the adviser should also tell you why it is more appropriate than your existing superannuation, for example because of lower fees.
Remember, while it is your financial adviser’s responsibility to provide you with the detailed disclosures discussed above, it is your responsibility read the Statement of Advice and ask your adviser any questions you have, before you make the switch.
If you are concerned that you have acted on financial advice that was not appropriate for you and has caused you financial loss contact us to speak to one of our experienced lawyers about your options.
The contents of this blog post are considered accurate as at the date of publication. However the applicable laws may be subject to change, thereby affecting the accuracy of the article. The information contained in this blog post is of a general nature only and is not specific to anyone’s personal circumstances. Please seek legal advice before acting on any of the information contained in this post.