Following the ban on grandfathered commissions that was legislated last year, there are more laws resulting from the royal commission recommendations that are set be consulted on and introduced to Parliament in June.
These changes include annual renewal, disclosure of lack of independence, reference checking, breach reporting and a ban on advice fees being paid from MySuper accounts. They are meant to take place from 1 July.
Mr Anderson called the whole list a “busy hectic regulatory reform agenda”.
He slammed the annual renewal, saying that the measure as recommended by commissioner Kenneth Hayne after the royal commission has not been delivered.
“They have delivered a 15-month renewal outcome,” Mr Anderson said.
“And that is because you’ve got the 12-month period and then you’ve got 60 days to issue the FDS. And then the client’s got 30 days to sign the opt-in. That’s 15 months, and then it resets and the new period starts.”
The proposed legislation on renewals in particular would extend opt-in to all adviser service fee clients, not just post-FOFA clients from 1 July 2013 and shrink the time frame to yearly, on top of mandating authorisation is provided to product providers.
The AFA has estimated pre-FOFA clients make up two-thirds to 50 per cent of all clients receiving advice.
“You’ll have six months to get [pre-FOFA clients] to renew,” Mr Anderson said.
“That’s a huge challenge, particularly when you consider grandfathered commissions, passing the exam, completing your education requirements not to mention all the other challenges within your business at this point in time.”
Mr Anderson called FDS formation an already “fundamentally flawed process”, adding the changes would see advisers having to estimate and report all services to be provided and the fees that would be charged in the next 12 months.
If advisers have an asset-based fee arrangement, they’ll have to estimate what the fees are going to be and detail in the FDS statement how they have worked out that estimate.
“We think the FDS should be repealed. The information is already included in the product statement,” Mr Anderson said.
“There is no greater consumer benefit in this and it will be replaced by the fees for the next 12 months. If you disconnect FDS’ from opt-in, then all of a sudden you can take a much more sensible approach to opt-in.
“We’re saying the client should be able to opt-in anytime between the ninth month and the 15th month. Give them not a 30-day window of opportunity, but a six-month window of opportunity, and we continue to work off a fixed anniversary day.”
He added the association does not view an annual proof of consent for every product provided as necessary, rather pointing towards a three-year or five-year period.
Further, the association is pushing for commencement to be deferred, “whether it’s the first of January next year, or the first of July”.
“You need much longer to deal with those pre-FOFA clients,” Mr Anderson said.
“There is no question if this was implemented as the current draft proposal, this would be a gold medal for red tape, and the outcome of that is it’ll drive up the cost of financial advice impacting many clients who are currently not paying particularly high fees.”
Here’s a novel approach to regulation:
1. Speak to clients – existing, past & potential of Advisers and ask them what they want
2. Apply a practical layer of consumer AND business protection over (1) above
3. Tell the Advisers what they’re expected to do, based on what the clients want – not in vaguely worded 100+ page documents that could mean an Adviser has to do X but it could mean Y – actual black & white “you must do X in this way with these documents & these inclusions”
In any other industry if they had a regulator as incompetent, illogical, power-hungry, anti-business, anti-adviser and impractical, there’d be a complete overhaul.
The government needs to step in and instead of taking advice from ex-lawyers (Hayne I’m looking at you) or public servants with little-to-no knowledge on their subject matter or Advice in a practical sense (except the few ex “Advisers” ASIC have working for them, who seem to mostly be there because they failed as Advisers anyway), take advice from CLIENTS and the public in general AND Advisers.
It’s time there’s a Royal Commission solely into ASIC and the public service departments.
NO understanding of what damage they are doing to the customer
Coming soon – monthly FDSs and the client needs to sign and return one every month
If clients are to be engaged on an annual basis what is the point of FDSs?
It’s a tool for ASIC to persecute and embarrass us. There is no other purpose for FDS’s with client’s opting in annually.
Who cares no one is listening to you anyway stop going for headlines and actual get something done for your members
You just do what Commissioner Hayne does in his old business. Sign them up on a 3 year up front retainer (as a one off fee), & review those smaller clients 3 years later. Still works out at 0.55% pa, & these clients are still being reviewed more than any member being fleeced for intra-fund admin fees. All that has happened is that our industry has allowed the legal industry to set our terms of remuneration, which is pathetic.
Where is the FPA on this? These reforms are a complete disaster. If Opt-In moves to annual, FDS’s are redundant because clients are signing on to them every year. Just include the cost and service in the renewal letter and give clients a 6 month window to sign it. Why is that so hard?
I know this will be unpopular but you have had 7 years to deal with the pre FoFA clients. Post Royal Commission there is going to be zero sympathy. A few bad eggs have tarnished all but really the pre FoFA commission set up should have been replaced long ago.
Do you and ALL the politicians not understand the meaning of the word “GRANDFATHERED”???? DISGRACE
Your comments are ironic. It will be the public who come off second best as a result of over reach. In time, the powers that be and the public will realise this.
So as far as fee disclosure goes, the customer already gets x2 statements from the fund PLUS the annual FDS plus the proposed annual renewal? That’s 4 pieces of fee disclosure in one year?? We have already removed customers with fund balances under $50k from all our registers because the cost of administration is greater than revenue received.
we are removing every client with less the $100k and that is around 250 clients. Another large practice in my network is dumping 4,000 clients and only keeping 1,400 clients…. also having to get rid of 8 full time staff. Great job ScoMo, Josh & Jane!
Ethics exam for us and Sports Rorts for you lot.
Agreed, it’s ridiculous. I would have thought $50k was a VERY low threshold ?
Here here
Well Phil no one has seen much common sense relating to anything that’s come out of govt or the regulators…FASEA is a joke and about as poorly implemented as you’re likely to see, the exam is embarrassing and time frames are just not real world…aren’t you getting a bit tired of no one listening???
It’s going to drive up the costs of financial advice…? Looks a dead deer to be passed then.