OFA consents see DBFO drafting under fire yet again

The latest in a series of errors in the drafting of financial advice legislation relates to the anniversary dates for different ongoing fee arrangement (OFA) consents, according to law firm Cowell Clarke.

Following the passage of the first Delivering Better Financial Outcomes (DBFO) Act in earlier this year, the new OFA regime is set to begin from 10 January 2025.

However, Richard Hopkin, Emma Johnson, and Zac Mizgalski from Cowell Clarke have explained that the transition to the new regime could be more complicated than planned.

“While fee recipients will no longer be required to provide their clients with an annual Fee Disclosure Statement, they will be required to seek their clients’ written consent to enter into an OFA (Consent to Enter), to renew an OFA (Consent to Renew) and for fees to be deducted from their account (Consent to Deduct),” the lawyers said.

“A key difference between the old and new OFA regimes is that fee recipients now have the ability to amend each client’s anniversary day for the provision of their Consent to Renew (for example, to coincide with the end of the financial year).”

This, according to the Cowell Clarke team, is where things begin to fall apart thanks to a “technical issue in the legislation”.

“Fee recipients do not currently appear to have the ability to amend a client’s anniversary day for the provision of their Consent to Deduct,” they said.

“This means that if a fee recipient were to amend a client’s anniversary day for their Consent to Renew, they would not be able to do the same for their Consent to Deduct. This would result in the two consents being linked to different anniversary days, materially complicating the fee recipient’s administration of the OFA.

“This was clearly not the intention of the DBFO Act, which sought to make the new OFA regime more streamlined and flexible; however, unless rectified by ASIC, this issue promises to do nothing but the opposite.”

This is far from the only issue with the drafting of the DBFO legislation, with the Australian Securities and Investments Commission’s (ASIC) having to deliver relief measures in October that allow greater flexibility in providing an FSG when dealing in financial products.

At the time, Financial Advice Association Australia (FAAA) general manager policy, advocacy and standards Phil Anderson welcomed the relief measures, saying that it “provides certainty” for advisers.

“This relief resolves a problem that was identified in the law following the passing of the Delivering Better Financial Outcomes (DBFO) Bill, where the service of dealing was unintentionally not captured by this reform,” Anderson said.

“Dealing, which includes implementing a product that has been recommended as part of the provision of financial advice, is a critical service provided to clients. This relief now provides certainty to enable financial advice businesses to rely upon the FSG reform in the DBFO Bill.”

Cowell Clarke’s Hopkin had previously noted that the drafting error would essentially mitigate the positive impacts of the legislation.

“The exemption is drafted so that it is connected to, specifically, the provision of financial product advice. So that’s covering general advice and personal advice. As you know, that’s one of many services, financial services, that someone can provide under an AFSL, depending on their authorisations,” Hopkin said.

“The issue is that the exemption is narrowed to, or is drafted in such a way, as it is narrowed to the provision of advice. It doesn’t include an exemption for dealing in a financial product.”

Before the act was eventually passed, it was also subject to criticism over other errors, including an “embarrassing blunder” that would have effectively stopped general advice providers from utilising the exemption on conflicted remuneration in section 963B of the Corporations Act.

The bill initially proposed to amend multiple paragraphs within this section to make them “subject to section 963BB”, a new subsection that adds additional conditions to the exemption.

Specifically, the new section stops the exemption from applying unless the “licensee or the representative provides, or is likely to provide, personal advice to the client in relation to the relevant product”.

Speaking with ifa in April, Anderson said the exemption would now “seemingly only apply in the case of personal advice”.

“That wasn't in there in the version that was issued for consultation in November of last year,” he said.