QAR draft law: Fee consent process explained

In a media briefing on Monday afternoon, Financial Services Minister Stephen Jones said the first tranche of the legislation for the government’s Delivering Better Financial Outcomes package of reforms is predominantly about financial planners and people who are individually advised.

“There should be a capacity for them [advisers] to produce advice more efficiently. If it’s more efficient, then there should be cost savings in that,” Mr Jones said.

He hinted that the ball is now in the advisers’ court regarding possible cost reductions, with the government said to have delivered on its promise.

“Advisers have been saying for some time now, ‘If you reduce the red tape, we’ll be able to provide more affordable services’. We’re going to reduce the red tape, over to you.”

However, the industry isn’t entirely convinced. Namely, the exclusion of changes to key administrative burdens on advisers – such as statements of advice and the removal of safe harbour steps from the best interests duty – from the initial draft legislation has discouraged the industry.

In a statement on Tuesday morning, the chief executive officer of the Financial Advice Association Australia (FAAA), Sarah Abood, said: “These are important elements in cutting unnecessary red tape and have the potential to meaningfully reduce the cost of providing advice.”

But while these key administrative burdens have been relegated to a later date, what has been added to this first tranche of draft law is recommendation seven, which was initially part of the second stream of the government’s response to the Quality of Advice Review (QAR).

According to the explanatory memorandum that accompanied the draft legislation published on Tuesday, this part of the law makes changes to the SIS Act to ensure that superannuation trustees can pay a fee from a member’s superannuation account to an adviser for personal advice provided to the member about the member’s interest in the fund on the direction of the member.

It also makes amendments to the Income Tax Assessment Act 1997 to provide legal certainty that payments of certain personal advice fees by a trustee from the member’s interest in the fund are deductible from the fund’s assessable income and are not a superannuation benefit for the relevant members.

Commenting on recommendation seven’s inclusion in the first tranche of legislation and the exclusion of other areas of the government’s QAR response, the minister said that he “ummed and ahhed” about the right way to deliver the legislation.

“It’s just about being entirely pragmatic. What’s ready to go, let’s get it out, don’t hold it up,” he said.

Consent process explained

Recommendation eight, which consolidates different ongoing fee consent documents into one simplified document, is widely expected to simplify administrative processes for advisers and was applauded by Ms Abood on Tuesday morning.

“Delivering on this recommendation will save many hours of frustrating, inefficient, and unnecessary work for both advisers and their clients and we are very happy to see this included in the first tranche of legislation,” Ms Abood said.

According to the explanatory memorandum, the legislative changes allowing for this to happen include amendments to the Corporations Act to establish a consolidated and streamlined consent process for when a client enters or renews an ongoing fee arrangement and authorises ongoing advice fees to be deducted from a financial product.

As part of these amendments, the current requirement for advisers to provide a few disclosure statements to their clients as part of an ongoing fee arrangement is removed.

The draft law spells out that a client must provide written consent to an ongoing fee arrangement in accordance with requirements that are intended to ensure the client understands and agrees to the arrangements.

Among these requirements is an obligation for the “fee recipient” or adviser to provide key details to the client in writing, such as:

• The name and contact details of the person who is the fee recipient under the ongoing fee arrangement.
• An explanation of why the recipient is seeking the consent.
• The period the consent will cover.
• Information about the services that the client will be entitled to receive under the arrangement during the period covered by the consent.
• The frequency of the ongoing fees during the period.
• A statement that an ongoing fee arrangement can be terminated by the client at any time.
• A statement that the arrangement will terminate, and no further advice will be provided or fee charged under it, if the consent is not given.
• The date on which the arrangement will terminate if the consent is not given.
• The amount of each ongoing fee that the client will be required to pay under the arrangement during the period covered by the consent.

“If an amount of an ongoing fee cannot be determined at the time it is provided to the client, a reasonable estimate of the amount of the ongoing fee and an explanation of the method used to work out the estimate may be provided to the client,” the explanatory memorandum stipulates.

It also notes that the minister will have the power to “prescribe, by legislative instrument, other matters which need to be included in the matters disclosed to the client before consent can be given”.

“The diversity and complexity of the financial services industry, and evolving practices, make it necessary to provide for the minister to be able to prescribe additional details which must be provided to the client in writing before the client’s written consent is obtained,” the explanatory memorandum states.

“This instrument-making power therefore serves several functions, including keeping the legislation up to date and providing commercial certainty quickly and efficiently to industry participants.”

Other parts of the draft legislation include recommendation 10 which allows more flexibility in how financial services guides are provided, recommendations 13.1 to 13.5 which clarify that monetary or non-monetary benefits given by a client are not conflicted remuneration, and recommendations 13.7 to 13.9 which introduce written consent requirements for consumers before they purchase an insurance product that will result in a commission payment.

These will be explored in further coverage of the first tranche of QAR legislation on ifa.