AFA calls for amendment to annual opt-in laws

With the Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 set to return to Parliament for debate next week, AFA general manager of policy and professionalism Phil Anderson said the association had encouraged Treasury to address issues with FDS requirements that could be “a recipe for disaster” if not fixed before the industry moved to annual agreements.

“If money comes out of the client’s account at the end of one month and it’s paid to the licensee at the start of the next month, it may be in a different FDS year in a sense that the adviser had prepared the FDS on the basis of when the licensee had received the money, as opposed to if it was done on the basis of when it was taken out [of] the client’s account,” Mr Anderson said.

“ASIC have suggested advisers need to do manual checks to make sure they have the right amount in fee disclosure statements. 

“Advisers rely on their licensee’s remuneration system to process FDSs – they would need to completely rebuild their systems and have capacity to download information from product providers rather than rely on the information they get through their remuneration systems.”

Mr Anderson pointed to ASIC Report 636 on compliance with FDS and renewal obligations, released in late 2019, which showed significant numbers of FDS did not include all the required information, and pointed to discrepancies between product providers’ and licensees’ fee systems as a key reason for this.

“An FDS should include the amount of each ongoing fee paid by the client under the OFA in the previous year, and accurately reflect when those fees were paid by clients. It is a matter for you, the fee recipient, to determine how to ensure your FDSs include accurate information about the fees clients paid,” the report stated.

“If your clients pay ongoing fees through product providers, some methods may include logging into the product issuer or product platform website or portal to check when fees were deducted from each client’s account; [and] producing FDSs only when you are confident that you have complete data from the product issuer about the ongoing fees the client paid during the previous year (while still meeting the FDS timing requirements).”

Mr Anderson said the AFA had discussed the possibility of a no-action position on the issue with ASIC, and had been expecting it to be addressed in the government’s annual renewal legislation.

“Our conversations [with ASIC] were around the implementation of the royal commission annual renewal recommendation to be the basis to fix the issue – seemingly it’s fallen between the cracks and now our hope is that before the legislation is passed, it can be amended to fix this,” Mr Anderson said. 

“We have mentioned it to the Treasury, seemingly it was not something that they were aware of.”

Mr Anderson said the association was hopeful an amendment could be added to the bill to allow advisers to present FDSs to the client on the basis of when fees had been received by a licensee rather than debited from the client’s account.