Regulator urged to combine FDS, annual opt-ins

Xplore Wealth chief executive Mike Wright told ifa the managed account provider had suggested in its submission to ASIC’s Consultation Paper 329 that legislation to bring in annual fee consents be constructed with a view to folding fee disclosure statements and annual opt-ins together.

“We agree with the move from biannual to annual, but the proposal should be considered in conjunction with one of Hayne’s essential ideas, which is to make regulation much more efficient,” Mr Wright said.

He added that it made sense to combine the two documents given FDS’ had largely been made redundant by the removal of grandfathered commissions and the movement of client opt-ins to an annual basis.

“When FOFA was launched, the need for an FDS was legislated because opt-in was only biannual, so one of the protections was to make sure you’ve got a fee disclosure statement that year you didn’t get an opt-in,” he said.

“The second big theme was that the legislators grandfathered all opt-in arrangements pre-FOFA, so the FDS was important because that’s all they got for those clients. 

“But in recommendation 2.1 [of the royal commission report] it says let’s move from biannual to annual, and secondly no longer is it only for post-FOFA clients, it’s also for pre, so now everyone gets it annually.”

Mr Wright said while the consultation paper had suggested ASIC was open to combining the documents, the regulator needed to be more explicit in allowing this to occur to ensure licensees did not double up on paperwork in a quest to be compliant.

“In paragraph 63 of CP 329, they touched on the fact that maybe [combining the documents] is the right way. However it’s not clear that ASIC’s draft instrument sufficiently allows for the combination of these obligations – it is silent on this,” he said. 

“So we are encouraged that they are touching on it, but what would make it better is to make it clear in the instrument before it gets gazetted and becomes legislation. They need to make it clear that [it is] possible rather than leaving grey in the system and saying ‘maybe no one will get in trouble doing it’.”

Mr Wright said while he was surprised the regulator still seemed to be working towards a 1 July start date for the new rules despite the COVID-19 pandemic having paralysed Parliament from a lawmaking perspective, it was likely the date would be delayed.

“Could that still be legislated as planned? You would think it’s unlikely because even though Parliament is meeting in May, you’d think there would be bigger things on the agenda,” he said. 

“But it’s become such a political issue, particularly off the back of fee for no service, so politically it’s very important that these recommendations are implemented.”