The latest in a series of errors in the drafting of financial advice legislation relates to the anniversary dates for different ongoing fee arrangement (OFA) consents, according to law firm Cowell Clarke.
Following the passage of the first Delivering Better Financial Outcomes (DBFO) Act earlier this year, the new OFA regime is set to begin from 10 January 2025.
However, Richard Hopkin, Emma Johnson, and Zac Mizgalski from Cowell Clarke have explained that the transition to the new regime could be more complicated than planned.
“While fee recipients will no longer be required to provide their clients with an annual fee disclosure statement, they will be required to seek their clients’ written consent to enter into an OFA (consent to enter), to renew an OFA (consent to renew) and for fees to be deducted from their account (consent to deduct),” the lawyers said.
“A key difference between the old and new OFA regimes is that fee recipients now have the ability to amend each client’s anniversary day for the provision of their consent to renew (for example, to coincide with the end of the financial year).”
This, according to the Cowell Clarke team, is where things begin to fall apart thanks to a “technical issue in the legislation”.
“Fee recipients do not currently appear to have the ability to amend a client’s anniversary day for the provision of their consent to deduct,” they said.
“This means that if a fee recipient were to amend a client’s anniversary day for their consent to renew, they would not be able to do the same for their consent to deduct. This would result in the two consents being linked to different anniversary days, materially complicating the fee recipient’s administration of the OFA.
“This was clearly not the intention of the DBFO Act, which sought to make the new OFA regime more streamlined and flexible; however, unless rectified by ASIC, this issue promises to do nothing but the opposite.”
This is far from the only issue with the drafting of the DBFO legislation, with the Australian Securities and Investments Commission (ASIC) having to deliver relief measures in October that allow greater flexibility in providing an FSG when dealing in financial products.
At the time, Financial Advice Association Australia (FAAA) general manager policy, advocacy and standards Phil Anderson welcomed the relief measures, saying it “provides certainty” for advisers.
“This relief resolves a problem that was identified in the law following the passing of the Delivering Better Financial Outcomes (DBFO) Bill, where the service of dealing was unintentionally not captured by this reform,” Anderson said.
“Dealing, which includes implementing a product that has been recommended as part of the provision of financial advice, is a critical service provided to clients. This relief now provides certainty to enable financial advice businesses to rely upon the FSG reform in the DBFO Bill.”
Cowell Clarke’s Hopkin had previously noted that the drafting error would essentially mitigate the positive impacts of the legislation.
“The exemption is drafted so that it is connected to, specifically, the provision of financial product advice. So that’s covering general advice and personal advice. As you know, that’s one of many services, financial services, that someone can provide under an AFSL, depending on their authorisations,” Hopkin said.
“The issue is that the exemption is narrowed to, or is drafted in such a way, as it is narrowed to the provision of advice. It doesn’t include an exemption for dealing in a financial product.”
Before the act was eventually passed, it was also subject to criticism over other errors, including an “embarrassing blunder” that would have effectively stopped general advice providers from utilising the exemption on conflicted remuneration in section 963B of the Corporations Act.
The bill initially proposed to amend multiple paragraphs within this section to make them “subject to section 963BB”, a new subsection that adds additional conditions to the exemption.
Specifically, the new section stops the exemption from applying unless the “licensee or the representative provides, or is likely to provide, personal advice to the client in relation to the relevant product”.
Speaking with ifa in April, Anderson said the exemption would now “seemingly only apply in the case of personal advice”.
“That wasn’t in there in the version that was issued for consultation in November of last year,” he said.
We run FTA’s and having fully explored the new rules re OFA’s, will be sticking with FTA’s.
Honestly, there was nothing wrong with the process to begin with. It’s an agreement between the Adviser and the client, it created transparency, which in turn created trust! Also, yes you can amend the anniversary date with the product provider, if necessary (bring forward anniversary date), you just create a new agreement! Why don’t these Lawyers speak with the actual Advisers and support staff that know the process??
Starting a new agreement takes more work, as you also need to end the previous agreement and inform the platform. As a result of the inflexible timeframes and processes required by some of the platforms when starting a new agreement, you can also lose part of the fees you would otherwise have earned. Perhaps you don’t use platforms, but many of us do and the current system has been a nightmare.
Simple solution – lets start a discussion on Flat Tax rates rather than Marginal tax rates – Labor will not like that – so why is it the Superannuation a flat tax rate structure – lets bring Superannuation in line with MTR and take FUM away from these Product Providers? Plenty of work for Real Financial Planners then and the Product Providers can then compete?
Only in Australia could utter rubbish like this happen.
Canberra is a joke.
Jones out, ALP out.
I dont think the others are much better. It all started with them, if we remember.
Hung parliament incoming.
The good news is – Federal Budget does not look good. In the end, this will lead to more and more demand for Advice is best interests of the client, which is very different to best interest of the members (products).
Is this really serious? This is a simple form for gods sake, why do we need lawyers to waste time delving into the ifs and buts – don’t they have other work to do?
Why are we looking to combine everything into one form anyway, you know there will be hidden issues and it will just be all too complicated, and the pi insurers wont like it anyway so it will never be implemented in the real world.
We have survived the past few years with fds, opt in, and product fee forms, we can get it all done in a meeting, we are used to it, so lets just leave it as is and move on and try to fix something that is actually fixable.
There are so many people involved in this, it will never get industry consensus as there are too many self serving people involved that want totally different outcomes, there is no COMMON GOAL.
Its gotten too big and we have had no input into any of this anyway.
All we will end up with is more complexity and all these people that have never been planners are having the say into it, they love complexity as it means they can keep working on the “project”. Its like the three blind mice here. Just running in circles and achieving absolutely nothing, but getting paid big bucks for it
Are you serious or a union stooge?
madness continues. can we get to a position where the client signs a form and we get paid. If the client isnt reviewed turn it off. Simple to me. If you have an ongoing relationship this implies you are doing something and your client should be reviewed.Instead we have lawyer after lawyer setting up road blocks that do nothing for the client and load up the adviser with a compliance process that benefits no one. Time the advise industry took control of its future.
“Instead we have lawyer after lawyer setting up road blocks that do nothing for the client and load up the adviser with a compliance process that benefits no one.”
Benefits no one?
Since the RC in 2018, there is a certain type of Product Provider who has witnessed the fall of much of it’s competition?
– AMP Products and Advice – where did all the FUM go?
– Bank Products and Advice – where did all the FUM go?
– Financial Planner Numbers dramatically reduced – where did all the clients go?
Now we are at the stage where the Law Makers are attempting to allow the remaining product providers to, you guessed it,
– provide advice – is this where the FUM is?
– charge for this advice from the collective (same same as ongoing trail) – is this where the FUM is? Honestly, we now have all these “Studies” from “Experts” saying affordable advice is needed (to retain the FUM?) – what happened to the previous pitch of “if the advice is any good, the client will be willing to pay for it?
– New Class of Adviser (Special People these ones for sure – born with abilities to provide advice on certain issues without the need for Compliance that is essential for fully qualified Financial Planners)? No need for a Degree and Ethics, just give them a Phone and make sure the Product Provider is in charge of them?
Seems to me things are benefiting someone or something – it just not Financial Planners or clients?
For goodness sake – when will we (collectively) realise that the problem is the law itself. Justinian worked that out like 1,500 years ago, and history granted him the title ‘The Great’ for it.
Canberra’s Pollies & Bureaucrats have created a GORDIAN KNOT of such BS proportions they have no idea themselves how to untangle this HOT MESS !!!!
It’s truly a clown show in our Capital.
They don’t want to untangle it. It’s in their interest to make the mess even bigger.
We need a DOGE in Australia – no point trying to fix Treasury – just delete IMO. Completely useless IMO.
How about just a “consent for a dogs breakfast”…?
You can’t make this stuff up!