Of the 22 recommendations to be implemented under new legislation announced by the government last week, the FPA said it would be particularly focused on challenging Recommendation 2.1 relating to the requirement for financial advisers to renew client fee arrangements every 12 months.
Currently, advisers have a two-year period to renew client fee arrangements.
“The FPA agrees financial advisers should be required to periodically review and renew ongoing fee arrangements, document them and seek the consent of their clients for any fees to be charged,” said FPA chief executive Dante De Gori.
“However, we believe requiring this to be conducted annually without any modification to the laws around when an ongoing fee arrangement can be renewed rather than reset, adds considerable time and cost pressures on financial planning practices. It is not practical and will be too much of an administrative burden for many practices.”
The FPA noted it would remain cautious about the impact that implementing the recommendations under the legislation would have on advisers.
In particular, it warned of the further increase of the administration burden on financial planners while servicing their clients.
Mr De Gori said it is committed to helping members prepare and comply with the new legislation.
“The most important thing for financial planners is to understand the impact this will have on their business and to start planning how they can efficiently and effectively operate their business in this new legislative environment,” he said.
“This legislation will require business practice changes, administration changes, disclosure changes and financial planners need to be thinking about this sooner rather than later.”
What the government’s draft legislation will address
The government’s new draft legislation that will implement the following recommendations from the final report of the Hayne commission:
- Recommendation 1.15 on enforceable code provisions
- Recommendation 2.1 on annual renewal and payment of financial advice fees
- Recommendation 2.2 on disclosure of a lack of independence from advisers on why they are not independent, impartial and unbiased
- Recommendation 3.1 on prohibiting superannuation trustees from having duties other than those arising from or in the course of the performance of their duties as a trustee of a superannuation fund
- Recommendation 3.2 on removing a superannuation trustee’s capacity to charge advice fees from MySuper products
- Recommendation 3.3 on removing the capacity of a superannuation trustee to charge advice fees to a member unless certain conditions are satisfied, including the new requirements outlined in relation to Recommendation 2.1 for ongoing fee arrangements
- Recommendation 3.4 on prohibiting the hawking of superannuation products
- Recommendation 4.1 on prohibiting the hawking of insurance products
- Recommendation 4.3 on establishing an industry-wide deferred sales model for the sale of add-on insurance products
- Recommendations 4.4 on providing ASIC with the power to impose a cap on commissions for add-on insurance products and insurance-like products.
- Recommendation 4.5 on implementing a duty to take reasonable care not to make a misrepresentation to an insurer for consumer insurance contracts.
- Recommendation 4.6 on adding an extra condition for life insurers to show they would not have entered into a contract on any terms if they had known about the unintentional misrepresentation or non-disclosure.
- Additional commitments in response to Recommendation 4.2 to restrict use of the term “insurer” and “insurance” if the product or service is not insurance in circumstances where it is likely that the product or service could mistakenly be believed to be insurance.
In addition, the government said it would move to strengthen and enhance the regulatory regimes for ASIC and APRA by implementing:
- Recommendation 2.7 on establishing a compulsory scheme for checking references for prospective financial advisers
- Recommendations 2.8 and 7.2 on strengthening breach reporting requirements for Australian financial services licensees
- Recommendation 2.9 on requiring Australian financial services licensees to investigate misconduct by financial advisers and appropriately remediate clients affected by the misconduct
- Recommendation 1.6 that will apply the new obligations under Recommendations 2.7, 2.8, 2.9 and 7.2 to Australian credit licensees in relation to conduct by mortgage brokers
- Recommendation 3.8 and 6.3 on adjusting APRA and ASIC’s roles in relation to superannuation to accord with the principles that APRA is the prudential regulator and ASIC the conduct and disclosure regulator.
- Recommendation 6.4 on giving ASIC joint responsibility for enforceable provisions in the Superannuation Industry (Supervision) Act 1993
- Recommendation 6.5 on ensuring that APRA’s role is unchanged
- Recommendation 6.14 on establishing the Financial Regulator Assessment Authority to independently review the effectiveness of APRA and ASIC, and report on its findings to the minister
- Additional commitments in response to Recommendation 7.2 to provide ASIC with powers to give directions to financial services and credit licensees consistent with the recommendations of the ASIC Enforcement Review Taskforce
My fees. They’re going up up up! Every single cent of this will be passed on in full and my service agreements will have late fees and administration charges on top of this for any inconvenience in collecting fees. Will be increasing the minimum fee to be a client by another 10% as well. At this rate its unlikely anyone with less than 1m in investable assets will be able to be a client as a starting point (already at 850k), not to mention the 25% of my client base i fired and who now have no adviser. Getting out of the insurance game as well and will not be offering this as service anymore, too hard and unprofitable. Will shamelessly be offering services to the rich only and if anyone doesnt like it go cry to your local member.
The FPA and the clown running it should be abjectly ashamed. I don’t know how he can continue to float these useless articles in the press with a straight face. He should be removed and FPA disbanded. Useless clowns the lot of them. Worse, they are taking membership fees NOT IN THE BEST INTERESTS OF THEIR MEMBERSHIP as it is common knowledge they are doing ZERO to help advisers. not just my opinion – industry FACT. I challenge anyone to show examples of FPA justifying their inordinate fees to members. They are no better than useless paid public servants in Canberra that leech on the community purse.
Want a definition of Fee for No Service?? Look no further than the FPA
I note cautious plus helping adviser transition and understand the impact are on the same page. So this is already a fait accompli as far as the FPA is concerned. The organisation sadly is purely reactive.
– New laws coming soon…..FPA will help us understand the impact on our business. We run a business and know very well what the impact will be, but thanks anyway.
– Planners made the scapegoats for rotten institutional behaviour……we get a mental health hotline. Yeah, that helps.
Soon I’ll be sitting down and with everything I’ve recently learned from the FASEA exam and completing my Grad Dip is I’m becoming uncomfortable with the corporate strings attached to the FPA, AFA, etc. What value my CFP when I have a Grad Dip? I think when the renewals come I will look very carefully at what to do next.
Are the FPA looking to be the representatives for only financial advisers that are salaried ??
Only asking as thats all that will be left in the industry in the near future thanks to their great leadership.
Benefits of FPA membership over 20 years. 1) Ability to witness a Stat Dec 2) some nice conferences and CPD webinars. Negatives, 1) FASEA, 2) FoFA, 3) Opt In, FDS & Red tape, 4) Australians crying in my office cause they can’t get advice, 5) no one wanting to become planners because training requirements are too onerous 6) depressed business valuations.
Can I suggest we give the FPA a miss this time around and they focus on cup cakes and coffee & tea at an annual conference. I sense a common theme here and it’s not really working out for me.
Cautious…. how does that help us? Typically another politically correct response. Come on FPA stand up for your members and finally do something for us! Otherwise you will have no members left next year. CFP is out of the window anyway…
Annual Opt In for financial advice and service but trailing commissions for mortgage brokers to continue. What the ?
“cautious” The FPA’s name for being useless whilst financial advice crashes around them.
In an interview with The Australian Financial Review on the first anniversary of the Hayne royal commission’s final report, David Murray – who headed the Financial System Inquiry which delivered its final report in late 2014 – warned there was a risk financial advice could become unaffordable for many Australians.
He said, “the risk now is that we find ourselves approaching a situation – which more or less occurred in the United Kingdom – where it will not be possible for anybody to provide affordable financial advice for a decent number of Australians.”
This, he said, “is not only unfortunate, it is inconsistent. Because the starting point of the law is, if you want financial advice, you have to go to an accredited adviser”.
“So if you take the view that it’s important for people to have financial advice, then to design a system where people can’t afford it is illogical. That remains a very big issue.”
SO IN the absence of reverting out to 5 year opt ins, it is far easier to simply charge a large one off up front fee, which is not classed as an “ongoing fee”. Funny how Wholesale clients don’t have to meet the FDS criteria at all. The whole thing is a total sham. Imagine if these laws applied to ongoing monthly fees charged by Telstra, St John Ambulance, or Union membership. There would be riot. But we simply sit here & take it like lemmings.
Given we already have the 2 year opt in where did the push for annual agreements come from ? How about we implement the same rules re salary contracts. Each year the employer can decide whether they continue with the employment agreement. How would that reduced job security go when you are applying for a home loan ? It is the same security impact on small business.
How about we implement a 1 year opt-in term on politicians and senior public servants instead of the current 4 year terms the politicians operate under, and the “I’ll stay here until I retire/die/receive-a-better-offer-from-the-private-sector” terms the senior public servants operate under?
I still recall someone in a Senate Committee (from memory) saying about FDS’s “It only costs a business $1 to create and send a letter to clients”. How much has been spent on FDS systems etc so far, and producing them?
Legislators & Regulators seem to have no concept of the reality of our businesses.
except it costs about $1000 to chase up / visit them to send the renewal paperwork back again.
Plus the time to collate the data, because data feeds into software are so shite.
I think we need another 10,000 pages of rules, regulations, codes and guidelines just be sure. And at least 5 more regulatory authorities to maximise the amount of red tape.
I think we need a RC into the RC, then a new authority that oversees the work being done by the new authorities you’re suggesting, that overlook the current authorities. This in turn will create additional public service jobs, thereby reducing unemployment figures or at least offsetting the impact of financial service job losses that are coming about due to the initial RC.
Remain Cautious?! How about mobilising to support advisers and fighting to right the wrongs of these so-called reforms that everyone in the industry knows will crunch good advisers with bad fallout for Australians who need grassroots advice? The FPA doesn’t get paid large salaries to just sit around and be cautious! How about taking the Government on and challenging the flaws in the reform agenda???
Up up, the fees are up.
why would they be cautious? All the Gvt has done to date is rush through massive reforms with NO regard to the impact on clients and small businesses. The industry is stuffed.
I can’t wait to vote for labor at the next election for the first time ever. Not that they will be any better for our industry but at least they don’t masquerade as the champions of small business.
Of all the ones to challenge the annual renewal is the least of our worries.
We all see the clients once a year to do the review, just get them to sign one more piece of paper
Probably more than 1 piece of paper, plus additional detail in an FDS (which you would think is now obsolete), plus the product form and processing all of these. Plus any pre-2013 clients will now be included. Not a simple / cheap thing and certainly not in the timeframe that is proposed.
What a smug comment. What if the client is hospitalised, overseas, away on work commitments etc etc ? This rule will empower trustees to stop adviser at the press of a button. Be careful what you wish for.
Some allready have implemented what you are saying
I’d have to agree with Anon on this one… How do you justify the yearly fee if you haven’t produced an SoA or RoA? What did you do for them?… In that meeting signoff a new agreement, simple…
If they’re away then turn the fee off and when you present the ROA/soa turn it back on again. Why would you get paid for doing nothing and presenting nothing?…
You guys just don’t get it. It won’t be you turning the fee off, it will be the Trustee. Good luck with that.
John Edwards you smug so and so, fighting this shows you are out of step. Yes these situations will occur but they do now in 2 year opt in. We need to look at what community expectations are not just your own self serving interests
Yes, but easier said than done. What if clients are hard to get hold of or away? On the 366th day they need to be terminated. These rules were born in a lab by people who have good intentions but no practical experience.
Perhaps with so much regulatory interference this sector should be nationalised.
I would be very happy enjoying the same remuneration and conditions as that enjoyed by public sector employees.
Furthermore with no risk capital on the line we’d be on a winner.
Here’s a thought. Put all the public servants employment contracts on an annual opt in. Much simpler to flick the dead wood and save all the redundancy costs. Job security ? Don’t worry work hard and be honest and transparent and you will be fine !!
Dante? Didn’t I see him at the Royal Commission ? He must be the only CEO still standing. I doubt this will get any legs given 1) he’s tainted goods and 2) the relationship between the FPA and large institutions via the professional partner program. Time for the FPA to move on from 1998.