Legislation has been introduced into the Parliament that addresses recommendations from the Banking Royal Commission including those around annual renewal, disclosure of lack of independence and rules on advice fees in superannuation.
A statement from the Treasurer, Josh Frydenberg and Senator Jane Hume, the Assistant Minister for Superannuation, Financial Services and Financial Technology, says the Government is implementing these further reforms “…to strengthen the financial advice sector and provide consumers with better access to affordable and high quality financial advice”.
It states these reforms:
- Strengthen and simplify the ongoing fee arrangement framework in the Corporations Act 2001 to minimise the risk that these types of arrangements give rise to fee for no service conduct (rec. 2.1)
- Amend disclosure requirements to ensure that financial advisers disclose whether they are independent (rec. 2.2)
- Ensure that only fees for one-off financial advice can be deducted out of MySuper accounts (rec.s 3.2 and 3.3)
The statement says that following consultation on these recommendations, the Government has streamlined the approach to implementation to avoid duplication with existing requirements, minimise compliance costs for financial advisers and their clients and ensure all superannuation members are able to access financial advice and pay for that advice from their superannuation.
The Ministers also announced that FASEA is to be dismantled, with its existing brief of responsibilities split between ASIC and the Treasury (see: FASEA To Be Dismantled).
An AFA members’ alert on the legislation says that while the three elements outlined above are important, the most significant issue for the AFA, and its members, is the new Annual Renewal obligation.
One, rather than three, documents
It notes that the AFA has put a lot of effort into advocating for a workable model for Annual Renewal and that while the legislation does not entirely reflect its recommendation, “…it does incorporate some key elements, including one rather than three documents and greater flexibility and more time for clients to renew”.
The AFA alert summarises the changes as part of the new Annual Renewal law:
The Fee Disclosure Statement (FDS) and the Renewal or Opt-In notice will be merged into a single document
- The new process will apply consistently to both pre and post FoFA clients (i.e. 1 July 2013)
- The Fee Disclosure Statement (FDS) and the Renewal or Opt-In notice will be merged into a single document
- The FDS will be expanded to not only include fees and services for the last year, but also the services and fees to be paid in the following year. Where the fees are an estimate, the basis for the estimate must be explained
- As previously required, the FDS must be issued within 60 days of the anniversary day
- The Renewal Period, following the anniversary day, is a period of 120 days
- Where a client does not provide consent within the Renewal Period, the fees need to be turned off within a further 30 days (a total of 150 days since the anniversary)
- Consent must be provided to product providers on an annual basis (other than when paid from basic banking products or credit cards)
The AFA says the proposed commencement date for these changes is 1 July 2021, however there will be a 12-month transition period.
Its note to members also says that page 4 of the Explanatory Memorandum acknowledges that this legislation will involve both material initial and ongoing costs for financial advice practices.
“We are conscious of this additional burden and remain committed to working with Government and the regulators on how to reduce the cost of financial advice.”
