Sensible reforms to proposed ongoing advice fee changes
In the October 2020 edition of Adviser News, we highlighted the upcoming changes to ongoing advice fees that had yet to be introduced to Parliament. Presumably wanting to give the financial services industry a little Christmas gift, on 9 December 2020 the Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020, was introduced into the House of Representatives, giving us some clarity as to the future of ongoing advice fees. This Bill has now passed through Parliament and received Royal Assent.
What has stayed the same?
The overarching idea of having annual ongoing fee disclosure, renewal and consent remains, however the implementation is now much simpler than originally proposed. The new approach also corrects ‘disclosure gaps’ – periods of service that would not be covered under a fee disclosure statement (FDS) – that existed in the exposure draft legislation.
What has changed?
The legislation, as introduced, contains a raft of simplifications that are expected to help advisers and their clients navigate the new world. This includes:
- a start date of 1 July 2021 for new arrangements entered into after that date, with a 12-month transition for all existing clients
- the enhanced FDS and renewal documents have been consolidated into a single enhanced FDS
- the FDS, renewal and consent timeframes have all been simplified around the anniversary of the client’s engagement with the adviser. The enhanced FDS will cover a 24-month window – 12 months in the past, and 12 months into the future. Advisers will have 60 days to produce the enhanced FDS and a further 60 days for the client to renew the arrangement. If not renewed, the consent to deduct fees will cease 30 days after the end of this period (so a total of 150 days from the anniversary date).
An interesting side-effect to simplifying the dates down to the anniversary date appears to be the loss of being able to ‘shift’ your disclosure day (which will no longer exist under the proposed amendments) by issuing an FDS before 12 months has passed from the last FDS. However, the Australian Securities and Investment Commission (ASIC) specifically noted their intention to provide further guidance on this as part of the ongoing fee regulatory guidance.
Details of the consent document
In addition to simplified legislation, on 24 March 2021 ASIC released the final instruments which contain the requirements for client consent. The draft instrument included specific details about how ongoing fees are calculated and the services the client can expect in exchange for that fee. There was substantial duplication of information and intent across the fee disclosure statement, fee renewal and consent.
The final instruments take a page from the sensible rationalisation applied to the legislation and now provides that the consent can form part of the fee disclosure statement, and any information that is already noted in the fee disclosure statement (such as the details of what fees are expected and what services are to be provided) does not need to be repeated in this attached consent.
Overall, the changes between the initial version of the consent requirement to what has been enacted, will help to simplify and streamline the ongoing advice fee consent process without impacting the intent of the Financial Services Royal Commission recommendations.
Ongoing fee consents will be required from 1 July 2021 with a consistent 12 month transition to bring existing clients on board. Whilst fast action will be needed to update fee disclosure documents and processes for 1 July, the simplified requirements should help advisers keep their disclosure clear and concise.
If you’d like more information, please speak to your IOOF Client Solutions Manager.