After the death of a client, many advisers provide comprehensive estate planning advice and services to their estate and beneficiaries. Several advisers have asked for clarification around legal issues and IOOF’s procedures when we are notified that a client has died.
The key legal issues involved include:
- When a person dies, any financial instructions they have given no longer apply.1 As an example, a bank will stop any direct debits after they have been notified that an account holder has died.
- Under Corporations law, advice fees can be paid from an investment as long as the (living) client directs it. The authority to be paid advice fees ceases on the death of the client.
- Under super law a trustee can only be directed by a member or beneficiary in respect of their benefits. When a member dies any direction given to the trustee to pay advice fees ceases.
- Super fund trust deeds generally set out what happens when a member dies. For example, the IOOF trust deed says that on death:
- the member ceases to have an interest in the fund and any charge against the account – including an advice fee - cannot be made unless approved by the beneficiary
- the reversionary beneficiary becomes the fund member on the death of the original pensioner. Under super law the reversionary beneficiary must direct the trustee to pay any advice fee for it to be allowed to be paid.
What does IOOF do on the death of an investor or super fund member?
When we are first notified of the death of a super fund member, we will suspend all negotiated advice fees in relation to the account, including Adviser Service Fees and contribution fees. We will also contact the adviser to inform them advice fees will be suspended.
- If the adviser is continuing to provide advice to the beneficiary of the account (either the deceased’s estate or to the nominated beneficiary), the adviser should provide written instructions from the beneficiary to continue to pay the Adviser Service Fee. Where a reversionary beneficiary has been nominated on a pension, our practice is to send out a form to the adviser or beneficiary seeking changes to the account details. This form also includes a provision for the beneficiary to confirm advice fees.
- Once we receive written instructions, we can reinstate the Adviser Service Fee or charge a separate advice fee as directed.
- Where the client had an (non-super) investment account, advice fees will be suspended if the deceased client was the sole investor. For joint accounts, or if the investor was a company, advice fees can continue.
What happens to advice fees paid after the date of death but before the Platform is notified?
IOOF will suspend advice fees from the date we are notified of the client’s death. Advisers will need to consider their own processes in relation to advice fees received prior to that point.
Shouldn’t I be paid for the services I provide after my client’s death?
We understand that advisers can do a lot of work for beneficiaries after a client passes away – arranging insurance payments, collecting documentation etc. However the law is clear, and we can only deduct advice fees from an account where we are directed by a (living) client.
To reduce the impact on the bereaved family caused by the death of a client, IOOF will be amending the beneficiary nomination forms to allow a nominated beneficiary to approve ongoing advice fees in advance, as part of the estate planning process.
Will IOOF make back payments if the executor/beneficiary notifies IOOF to reinstate ongoing advice fees?
IOOF will only pay advice fees from the date of notification, as this is the date the new client provides us with authority to pay the advice fees from the account. We have no authority to make payments in respect of the period from death to the date of notification.
If I charge advice fees after the death of a client, should I also provide a Statement of Advice?
As a general guide we have set out what, as a minimum, should happen in the following situations. However, in relation to each scenario we suggest you seek guidance from your licensee about the appropriate process to follow upon a client’s death.
1) Providing administration services to the deceased estate or the nominated beneficiaries. This would include assisting with redemptions of investments, facilitating the distribution of lump sum super benefits to nominated beneficiaries and describing the tax consequences of doing so.
- The executor or nominated beneficiary would need to approve advice fees in writing.
- A Statement of Advice (SoA) should not be required as this does not entail advice.
2) Where the executor or the nominated beneficiary commences a new financial product on the recommendation of the adviser. This would include, for example, providing advice and facilitating the commencement of a new death pension for a beneficiary, or the executor establishing a new financial product as part of the management of the deceased estate.
- New ongoing advice fees would be provided for in the application for the new product. Whether opt-in every two years applies will depend on whether the adviser had provided personal advice to the beneficiary before 2013. However, the executor is (arguably) a new client so any ongoing advice fees would require opt-in after two years.
- This would likely require an SoA as this entails personal advice.
3) Where a deceased’s super pension had a nominated reversionary beneficiary and the adviser had originally provided advice to both parties as a couple.
- If the reversionary beneficiary agrees to continue the ongoing advice fee and notifies the trustee in writing, the trustee can continue to pay the fee. However, if it is a new arrangement, and whether opt-in applies will depend on whether the adviser has provided personal advice to the reversionary beneficiary before 2013.
- The actual transfer to the reversionary beneficiary is automatic. However, an SoA will likely be required at some stage to address the changing needs of the reversionary beneficiary.
Will IOOF continue to pay commissions after the death of a super member?
Some commission payments automatically cease on the death of a client. These include:
- insurance commissions, and
- any residual contribution commissions because these are negotiated advice fees, and
- commissions on reversionary pensions because these are not grandfathered under FoFA.
Otherwise, whether commissions continue will depend on whether the adviser is providing services to the estate and the beneficiaries. As commissions form part of administration fees, the trustee will continue to pay for services if these are being provided by the adviser.
This is the process IOOF uses for charging fees, but other licensees will probably use a slightly different one. You should confirm with your licensee what their process is to ensure any advice fees charged upon the death of your clients are correct.
Find out more
If you would like more information about how IOOF charges fees after a client passes away, please contact your Client Solutions Manager.
________________________________________