With less than a month before the new advice fee consent rules kick in, one would hope there would be more clarity regarding how advisers are expected to comply with laws the AFA has said will "add significantly to the administrative workload of financial advice practices."
As the same association pointed out last month, though, the legislation was worded such that, during the transition period between 1 July 2021 and 30 June 2022, an adviser would be required to provide a fee disclosure statement that details fees charged immediately up to the day of issue. This, in effect, would give advice businesses only one day to issue an FDS - one that also estimates fees charged over the following 12 months.
Given the practicalities involved, the AFA and the FPA jointly wrote to ASIC and Treasury to determine what kind of relief could be provided.
The Government has now clarified its position on the issue - a statement from Senator Jane Hume acknowledged that "industry may have difficulties generating an accurate fee disclosure statement during the transition period of 1 July 2021 to 30 June 2022 as fees are required to be reported up to the day before the statement is issued."
To remedy this, Hume said the Government will "make a regulation to allow financial advisers to report an estimate of fees for the 60 days prior to the statement being issued. The estimate would be reported alongside the actual fees charged for the remainder of the previous 12 months."
This relief measure will only apply during the transition period mentioned above. After that, advisers will have 60 days from the anniversary date (that being the date the FDS was first issued) to issue a new FDS which includes all fees charged over the previous 12-month period.
At the same time, ASIC acknowledged industry feedback about the complexity of regulatory guidance during the consultation for its affordable advice review and has issued a new information sheet which aims to answer common questions about advisers' new obligations.
You can read the full FAQ here, and it's worth revisiting the comprehensive standard of record-keeping ASIC expects from advice businesses entering into ongoing fee arrangements (OFAs) with clients. In a recent feature, we explored the technological challenges involved in meeting these new requirements.
What's also worth noting from the information sheet is that ASIC explains multiple times that it has no exemption or modification powers regarding the new laws and "cannot provide relief from the OFA obligations." The AFA pointed this out in its initial statement about the one-day FDS problem, noting that the regulator "can only take a facilitative compliance approach, where they would agree not to take any regulatory action where breaches occur."
As that same statement noted, though, even if ASIC declines to take regulatory action, this would not prevent the automatic termination of an OFA nor would it stop "other parties from taking action."
That the Government was able to provide relief in this instance doesn't fully address the industry's broader concerns with the OFA laws, which have been described as "another Royal Commission-related bill that has been pushed through the Parliament with undue haste and lack of due process."
When the annual renewal bill passed the Senate, Senator Slade Brockman argued that Royal Commissions "do not necessarily provide recommendations that always reflect the full breadth of knowledge and information that governments need to take into account." He added that the "suite of changes" in advice over the past 10 years may have "created an environment where the cost of advice will increase and some Australians will not be able to afford high-quality financial advice.”
We don't know yet just how much of an overall impact these rules will have on the cost of advice - perhaps because the Bill was submitted without a Regulation Impact Statement. But if changes like these are being made just weeks before the new fee regime kicks in, one does wonder: where is the leadership on this issue?
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