Hayne advice reforms before Parliament

The Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020, tabled in the House of Representatives on Wednesday, has dealt with annual renewals and payments, disclosure of lack of independence and restrictions on deducting advice fees from super.

The most significant change resulting from the bill for advisers, as noted by the AFA, is the new annual renewal obligation.

The draft law has amended the Corporations Act to require financial services providers that receive fees on an ongoing fee arrangement to provide clients with a single document each year that outlines the fees that will be charged and the services for which the client will be entitled to in the following 12 months. The document will also seek annual renewal from clients on all ongoing fee arrangements.

It would replace the fee disclosure statement (FDS) and the renewal or opt-in notice, merging three documents into one.

But the FDS would be expanded to not only include fees and services for the last year, but also the services and fees to be paid in the following year. Where the fees are an estimate, the basis for the estimate has to be explained.

As previously required, the FDS must be issued within 60 days of the anniversary day, with the renewal period being 120 days. Where a client does not provide consent within the renewal period, the fees need to be turned off within a further 30 days (a total of 150 days since the anniversary).

Providers will also need to obtain written consent before fees under an ongoing fee arrangement can be deducted from a client’s account.

The new process will apply to both pre and post FOFA clients.

The explanatory memorandum for the bill has acknowledged the legislation will involve both material initial and ongoing costs for financial advice practices.

“We are conscious of this additional burden and remain committed to working [with] government and the regulators on how to reduce the cost of financial advice,” AFA chief executive Philip Kewin wrote in a note to the body’s members.

The bill will also require advice providers (AFSLs or an authorised representative) to give a written disclosure of lack of independence where they are authorised to provide personal advice to a retail client.

Finally, the bill has proposed to amend the SIS Act to increase the visibility of advice fees for all super products and prohibit the charging of ongoing advice fees from MySuper products.

It has allowed fees for advice related to MySuper products to be charged to a MySuper product on a one-off basis, when consumers choose to seek advice.

All of the changes are set to apply from 1 July next year, with a 12-month transition period.

The bill will still need to be passed in the Senate before it becomes law – although it is unlikely to be passed until next year as Thursday is the last day of sittings for 2020.

But shadow treasurer Jim Chalmers and shadow assistant treasurer Stephen Jones have criticised the Coalition government for winding back the responsible lending laws, while implementing other royal commission reforms.

FPA chief executive Dante De Gori has called the new bill a “promising development”, with the government making changes to annual renewable arrangements in response to industry concerns around the required notice and anniversary date operation.

The body has said that it advocated for the changes, as part of its push for lower regulatory burdens for planners and more accessible advice.

“We will thoroughly review the bill and continue to hold discussions with government on the issues most critical to our members,” Mr De Gori said.

The first bill implementing the Hayne commission reforms, which includes the claims handling licensing requirements and other measures, was debated in the House of Representatives on Wednesday and is set to be debated in the Senate.