Fee consent ‘technical flaw’ causing angst for advisers

The Australian Securities and Investments Commission (ASIC) has confirmed that cases where a fee consent form does not include an account number could be a reportable incident, with a “no action” deadline being placed on the matter until 5 September. However, FAAA general manager of policy, advocacy and standards Phil Anderson said changes need to be made to the rule before this deadline.

“It's an extra step to make sure that the fee is coming out of the right account. I don't think it's necessary,” Anderson told ifa.

These requirements stem from the first tranche of Delivering Better Financial Outcomes (DBFO) legislation, which significantly changed the opt-in, fee disclosure and fee consent obligations when it passed Parliament in July 2024.

The reform, as the FAAA explained, “removed the Fee Disclosure Statement (FDS) obligation and sought to combine multiple consent form obligations, including the need to comply with the obligation to obtain consent to continue an Ongoing Fee Arrangement (opt-in or renewal) and the obligation to obtain consent for a fee to be deducted from a product account”. Anderson explained that, so far, this new rule has meant that licensees and advisers have had to put new ongoing fee arrangements in place with new fee consent forms, a time-consuming undertaking.

“There are many experienced people around the profession who do not fully understand the intricacies of how the different provisions in the law interact and therefore how these obligations work,” the FAAA stated in a new paper on the issue.

“This adds to the already high level of uncertainty and confusion. This all serves to highlight exactly what the ALRC said about the poor state of the Corporations Act and the need to fix it.”

In January last year, then-attorney-general Mark Dreyfus tabled the ALRC’s final report on the Corporations Act, titled Confronting Complexity: Reforming Corporations and Financial Services Legislation, which called the legislation governing Australia’s financial services industry as a tangled mess – difficult to navigate, costly to comply with, and unnecessarily difficult to enforce.

In the report, judges described the current laws as being like “porridge”, “tortuous”, treacherous”, and “labyrinthine”, while others called the legislation “broken”.

However, since it was tabled, the report has languished and is now the purview of a new Attorney-General.

This complex regulatory environment is compounded thanks to what the FAAA called a “technical flaw” in the DBFO legislation around fee consents.

“Licensees are doing a substantial number of breach reports relating to this matter, at great cost,” it said.

“Another big factor here is that despite the fact that this problem was known from around the time when the obligation commenced, there is no flexibility in this part of the Corporations Act for either the Minister or ASIC to fix it. This outcome should have been avoidable.”

Anderson also highlighted how, due to the now several year-old existence of consent forms, many in the industry did not see how this would be a problem:

“Fee consent forms have been in place since 2021 so if there was a problem about it coming out of the wrong account, then it would have been escalated to this point. There hasn't been the talk in the marketplace. So, we don't think there is a problem.”

For Anderson, the fix on this issue is simple: “We think that this could simply be solved by removing that reference to account number. Or alternatively, it should be possible that the account number can be separately notified without the need for the client signature to be added again.”

However, there seems to be little motivation from legislatures to make significant inroads to fix this issue.