Industry body warns on ‘critical’ renewal error

In a member communication on Wednesday, the AFA said there was a “critical issue” with annual renewal laws due to come into force on 1 July.

“During the transition year (1 July 2021 to 30 June 2022), the new legislation requires an adviser to provide a FDS that covers a 12-month period up to the day immediately before the day the FDS is provided,” the association said. 

“Advisers will therefore have only one day to issue the FDS. As this is impossible, the law will need to be changed and advisers should hold off on issuing FDSs after 1 July 2021 until this is fixed, unless they are completely confident that they can get it totally correct.

“The one-day requirement during the transition year compares with 60 days both before and after the transition year.”

The comments follow the association’s unsuccessful attempts to lobby for amendments to the laws before they passed Parliament in February, with the AFA at the time saying there were a number of anomalies in the bill that would make it logistically unworkable in a number of circumstances for advisers to avoid a breach.

The AFA said it had “requested a quick solution” to the issue from government, and had approached ASIC jointly with the FPA to request a facilitative compliance approach from the regulator during the transition year.

However, the association said it was important to understand ASIC could not provide regulatory relief on the laws, and the only way to prevent ongoing fee arrangements from automatically terminating upon a breach of the rules was to amend the legislation.

“This also does not prevent other parties from taking action. Ultimately this issue can only be solved by legislative change, however this is unlikely in the time left before commencement on 1 July 2021,” the AFA said.

The association recommended advisers take advantage of the transition rules and hold off from issuing FDSs to clients until later in the 2022 financial year, when the issue had hopefully been resolved.

“The complication is that the anniversary day for future years is set on the basis of the day you actually provide the FDS to the client in the transition year. That means if you provide an FDS to a client on 1 April 2022, then the next anniversary day would be 1 April 2023, and all future FDSs would need to cover the period 1 April to 31 March,” the AFA said.  

“In future, the only way to change an anniversary day is to terminate the arrangement and put a new arrangement in place.”