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
Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.
You can contact him on [email protected].