In the FAAA’s response to the government’s first tranche of Quality of Advice Review reforms, chief executive Sarah Abood says its key concern is the government’s decision to not mandate a standardised fee consent form.
She says the removal of the requirement to produce a Fee Disclosure Statement is welcome, although advisers with clients on annual agreements already don’t need to produce them.
“As a result, fee consent standardisation is the key reform in this first batch of ‘Stream 1’ draft legislation with the potential to achieve meaningful productivity gains.”
However, Abood says this draft legislation would not make it mandatory for product issuers to accept the standard form.
“And it is unlikely that product issuers will choose to make the expensive changes to their systems and processes that would be required to standardise fee consent, unless they are required to do so by law.”
…unless the draft legislation is changed advisers will be left in the current untenable position of needing to annually deliver many hundreds of different forms…
She believes that unless the draft legislation is changed “…advisers will be left in the current untenable position of needing to annually deliver many hundreds of different forms, in different ways, to every individual product provider they deal with. Clients will remain snowed under with unnecessary paperwork and the cost of advice will not move at all.”
In its submission the FAAA has suggested two options for change to the draft legislation that “…could achieve the goals of the Stream 1 reforms.”
Its first option is to remove the requirement for product issuers to verify each individual client consent. Abood says this is the simplest approach and the FAAA’s preferred option.
“It is based on an acknowledgement that since the Hayne Royal Commission, financial advice has become a profession, and advisers and their licensees have the positive obligation to obtain clients’ free, prior and informed consent to any benefits received, including fees.
…It is unnecessary, as well as hugely costly, for product issuers to be required to verify every individual consent form…
“It is unnecessary, as well as hugely costly, for product issuers to be required to verify every individual consent form. It is already against the law for such fees to be charged without client consent.”
She says that in this option “…a standard form would still be developed for financial advisers’ use, that they would be entitled to rely upon as evidence of consent.”
The FAAA’s second option would be to proceed with the current approach of advisers providing fee consent forms to product issuers “…however amend the primary legislation to include a mandate that all product providers must accept a rationalised standard form for the deduction of personal advice fees, as evidence of client consent.”
Abood says this would be more complex, as the standard form would need to take account of client units (husband, wife, trust, company etc) and multiple product holdings.
“However, we would still realise some efficiencies by removing a substantial level of variability for advisers and their clients.”
She notes that regardless of which of these options is followed “…another issue which must be addressed is the approach to the anniversary date for fee consent. The inability to change the anniversary date and thus move the date of annual reviews is a huge issue, impacting advice practice efficiency and the ability to be fully client-centric.”
Click here to view FAAA’s submission to Treasury.
