The “facilitative approach” taken by the Australian Securities and Investments Commission (ASIC) towards FoFA compliance ends on June 30 and financial planners have been warned to be ready to comply fully with the new laws – particularly the controversial opt-in provisions.
ASIC’s softly-softly approach to compliance was extended to June 30 this year after amendments that were expected to be made to the Future of Financial Advice (FoFA) laws last year were defeated in the senate.
“What it means is the best interests duty wasn’t changed; fee disclosure statements are now required for all clients, not just new clients; and opt in is back in play,” the Financial Planning Association’s general manager of policy and conduct, Dante De Gori, told the FPA national roadshow in Adelaide on Friday.
“ASIC…provided a facilitative approach for licensees and advisers until June 30 this year. You’ve got until June 30 this year before ASIC then start effectively regulating fully the FoFA amendments.
“One of those areas in particular that I think we all believed was not going to happen, which was opt in, obviously is in.
“I know that this is something that many of you have not turned your attention to, or were hoping it was going to go away.
“The opt-in process is only applicable for new clients – clients that you only provided, and only ever provided, a statement of advice for from July 1, 2013.
“Clients you’ve provided a statement of advice for prior to July 1, 2013 – they are not an opt-in client.”
Segment the client base
De Gori said a financial planning business could therefore segment its client base into “opt-in” and “non-opt-in” clients. In the former category are any clients that “you signed up and provided an SoA for after July 1, 2013, and you have on an ongoing fee arrangement that’s greater than 12 months”.
De Gori said that as an example, a client who received an SoA on August 1, 2013, will become an “opt-in client” from August 1 this year.
“Your 30 days to issue the [opt-in] notice will expire on August 30, 2015,” he said.
“The client will then have a further 30 days to actually respond – to opt in – which will cease on September 30, 2015. And if you do not hear anything from the client – if they do not opt in – you have a further 30 days to start turning off the fee arrangement, start calling the platform providers, whatever it is that you need to do to actually turn off the fees.”
De Gori said the FPA was actively discussing extending the 30-day rule to a 60-day rule, so “it’s possible the dates could become more flexible”.
“But in any case, the rules are very strict,” he said.
“I want to point out that the 30-day rule applies where someone is not going to opt in,” he said.
“If you do not hear from someone, then that 30-day rule around turning off the fees applies.
“But if a client proactively comes to you and says, ‘I am sorry, I don’t want you to be my adviser any more and I don’t want to keep paying these fees’, then your obligation is to turn them off as quickly as possible. You don’t have a 30-day limit in that space.”
De Gori said steps that all businesses should take between now and June 30 include formally identifying all opt-in clients’ anniversary dates and preparing an appropriate plan or schedule for starting the opt-in process. He said it could also be efficient to schedule opt in to coincide with annual reviews.
Communicate to clients
“Communication is the key here,” he said.
“Communicate to them that opt-in is required, and that you’re going to send it out. Communicate when you send it out. Communicate after you send it out.
“Look to bring forward those clients that you know are not going to be there on the anniversary date – they’ve got a holiday planned, they’ve got a medical procedure planned – or just those clients that are quite tricky and you know are notoriously never prompt in responding or getting their signature. Look at them first as your priority, and get them dealt with under the opt-in process.”
De Gori said it is important to remember that a client’s consent to opt in does not have to be obtained in writing. It can be in the form of an email, online verification, a text message, or verbal – but only if the verbal agreement is recorded.
“Your word against them, you won’t win,” he said.
De Gori said FPA members may have alternatives to the legal requirements for opt in under FoFA.
“One alternative is [to comply with] the FPA code, though the FPA code is still yet to be approved [by ASIC],” he said.
“It’s not approved at this stage, and that’s why I’m talking about opt in, because you’re going to have to comply with the law until such time as the code is approved.”
De Gori said complying with the FPA Code, if it is approved, means that financial planners will not have to comply with the 30-day rule under FoFA.
“You’ll have to still make sure you get the client to agree that they want to continue paying you those fees and being a client of yours; but you’ll have to do it within a three-year time period, not two,” he said.
“And of course, the penalties: a breach of opt in has a maximum fine of $50,000 on an individual or $250,000 on a body corporate. Under the FPA code, the penalty would be that you’re removed from being able to rely on the FPA code.
“Of course you can look at other options, such as doing an annual ongoing fee arrangement and getting your client to sign and to renew your fees every 12 months, and you can do that without the 30-day rule being in play.”
