Advisers who sign up to a code of conduct will need to renew their fee arrangements with clients every three years, according to the latest guidance released by the Australian Securities and Investments Commission (ASIC).
The regulator has updated its Regulatory Guide 183 to include its long-awaited guidance on the approval of codes of conduct designed to obviate the need for complying members to meet the opt-in requirements, as set out in the Future of Financial Advice (FoFA) legislation. In order to ‘obviate the need for opt-in’, ASIC says the alternative arrangements contained in the code should achieve “… substantially the same policy outcomes that s962K is intended to achieve—that is, to ‘protect disengaged clients from paying ongoing financial advice fees where they are receiving little or no service’.”
To meet the policy intent, ASIC says it expects that codes should include content that deals with the three aspects of an ongoing fee arrangement:
- Entering into an ongoing fee arrangement
- Delivering services under the arrangement, and
- Renewing the arrangement
In relation to part three – renewing the arrangement, ASIC’s suggested code content reads as follow:
‘The code requires that an ongoing fee arrangement must be renewed with the client at a mutually agreed interval, which is no less often than every three years.’
‘Subscribers must document and keep records confirming the client’s consent to the terms, fees and scope of the renewed arrangement.’
The suggested content above forms part of what ASIC terms an ‘if not, why not’ checklist, that is based on the three aspects of the ongoing fee arrangement. In order for a code to be considered for approval, the code applicant should either:
- State that the code includes the measures set out in the checklist
- If the code does not include the measures, explain why this is so and its alternative approach
According to Peter Kell, ASIC Commissioner, the suggested content differs from the opt-in requirements set out in legislation because “… ongoing client arrangements may not terminate in the same way that they do under the law.”
“A FoFA code approved under our policy will provide a flexible alternative to complying with the opt-in requirement,” he added.
The guidance also sets out that:
- ASIC will not accept codes for approval from individual licensees or dealer groups
- ‘Limited codes’ which only cover provisions that obviate the need for opt-in will be accepted for approval
- Codes that are designed to obviate the need for opt-in must include an online register of complying members
“We encourage code applicants to engage with us early on in the process and, as needed, we will give further guidance on our FoFA webpage,” Mr Kell said.
“Effective cooperation between all parties will be necessary for an approved code to work as an effective alternative to complying with the law.”
