Advisers will have to do more than seek the consent of their clients to maintain ongoing fee arrangements. They will have to warn of any loss or reduction of benefits that result from paying those fees.
They will also have to spell out the services the client will receive under the ongoing advice fee arrangement.
And they will be “encouraged” under the new arrangements to “collect and analyse a range of relevant and reliable consumer and transaction data to monitor consumer outcomes” in light of any disclosures.
In the case of fee consents, relevant data may include metrics on fees, renewals and accounts.
Under legislation proposed by the Government and currently issued in draft form, ASIC will have the power to make legislative instruments relating to annual renewal of advice fee arrangements, the deduction of fees from superannuation accounts and disclosures of lack of independence.
ASIC has issued a consultation paper (CP 329) setting out the legislative instruments it intends to make. It wants feedback by April 7.
Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumer – 2020 Measures) Bill 2020 includes the following measures:
A requirement that ongoing fee recipients renew the arrangements annually. This provision applies to licensees providing personal financial product advice to retail clients under ongoing fee arrangements. Licensees must set out the total fees that will be charged over the period.
A requirement that a financial services licensee or authorised representative provide written disclosure of “lack of independence”. The use of terms such as “independent”, “impartial” and “unbiased” will be restricted.
A person may only use a restricted word or expression in relation to a financial services business or financial service if they do not receive a commission, remuneration based on the volume of business placed or gifts or benefits that may be expected to influence the person.
Advice fees in superannuation. The bill removes a superannuation trustee’s capacity to charge advice fees from MySuper products. Trustees would still be permitted to charge fees in relation to intra-fund advice as administration fees.
The planned commencement date for the new rules is July 1
ASIC’s consultation paper says: “We intend to monitor implementation of the proposed requirements and test their impact on consumer outcomes. We may reconsider the requirements in the proposed legislative instruments if we find they are resulting in adverse consumer outcomes.”
In relation to its proposed approach to consent to the deduction of ongoing fees, the regulator says it has sought to strike a balance between adopting prescriptive standards and providing flexibility for fee recipients
There are a number of specific requirements relating to the wording to consent documents. They must include an explanation of why the fee recipient is seeking the account holder’s consent.
They must include information about the services the client will be entitled to receive under the arrangement.
And consent documents must include a warning of any benefits to which the account holder is entitled that may cease or be reduced because of the deduction of ongoing fees. For example, if insurance cover is affected by a drop in the account balance after fees are paid.
When it comes to seeking consent to deduct non-ongoing fees from a super fund member’s account, the consent document must include how long the consent will last and the amount of the fees.
The consent document must include a warning of the benefits to which a fund member is entitled that may cease or be reduced because of the fees paid. The example ASIC gives is that insurance cover could cease if fees make the account balance drop below a certain level.
The consent must also include a statement to the effect that the member can withdraw their consent prior to the fee deduction occurring at any time by contacting the fund.