The government’s plan to change advice opt-in periods from 24 to 12 months actually stretches out to a 15-month span and should be extricated from the FDS process entirely, according to the Association of Financial Advisers’ head of policy, Phil Anderson.
Presenting at the AFA’s Sydney Roadshow this morning, Anderson said the proposed annual renewal arrangements before parliament aren’t even annual.
“That is because you’ve got the 12-month period and then you’ve got 60 days to issue the FDS and the opt-in notice, and then the client’s got 30 days to sign the opt-in,” he said. “That’s 15 months, and then it resets and a new period starts. So effectively they’re giving us a 15-month renewal outcome.”
The AFA’s preferred solution, he outlined, was for clients to be able to opt-in at any time between the ninth and fifteenth month. “Give them not a 30-day window of opportunity but a six-month window of opportunity and we continue to work off a fixed anniversary date,” he said.
Anderson took exception to the fee disclosure statement process in general, revealing that the AFA believed the FDS should be repealed entirely. “The information is already included in product statements,” he argued, adding that there was “no great consumer benefit” in the document.
“The FDS is a most remarkable exercise,” Anderson said, before highlighting anomalies around remuneration accountability, GST inclusivity and the tax deductibility of fees. “FDS is a fundamentally flawed process,” he concluded.
Tying the new annual opt-in to the FDS was a mistake, Anderson said. “If you disconnect FDSs from opt-in then all of a sudden you can take a much more sensible approach to opt-in,” he added.
Alongside the annual opt-in change, the government is proposing that FDS documents be extended to include services and fees for the following year. If estimates are given, explanations must also be provided. This is on top of ‘lack of independence’ disclosure and other changes in line with recommendations out of the Hayne royal commission.
Anderson said the current draft Bill, if passed in its current form, would win the “gold medal for red tape”. Unless fixed, he warned, the changes “will add a huge amount of red tape for no benefit.”
The policy head also took aim at the government’s handling of the Financial Adviser Standards and Ethics Authority, particularly the way Standard three of FASEA’s Code of Ethics treats conflicts of interest. He compared the standard – which says advisers can’t “advise, refer or act” where a conflict exists – to the political machinations of the people that mandated the changes.
“It’s a bit like telling a political party that they can’t support a project in an electorate they’re targeting at the next election,” he said. “I don’t think the term ‘pork barrelling’ started in the financial advice sector. We all know that politics is based on doing deals where conflicts come into play…”
Very good points by Phil Anderson. The intent of these particular Hayne recommendations and the current legislation is punitive, it is to harm advisers and any benefit to consumers is secondary. Hence the complexity and inflexibility. It is coming from a consciousness that financial advice is unnecessary, at best, and only those should get it who really want this unneeded luxury.
I don’t understand why Phil Anderson attacks the politicians – they are putting into action what seems to be a general demand to punish these bastards (financial advisers). Politicians have their own issues but that is irrelevant.
While product providers can influence financial advisers we will always be on the backfoot and will get further layers of red tape. It is like having flesh eating bacteria in one’s arm and adding bandage after bandage. The arm needs to be cut off or the bacteria will just spread until the whole body dies.
If the draft legislation in relation to Recommendations 2.1, 2.2, 3.2 and 3.3 proceeds without amendment, this will in effect formalise two distinct types of financial product advice and two types of advisers.
They are: Financial advice that is being provided to other fund members of that default fund (without the informed consent of the members paying for advice they may not receive) and financial advice outside default funds, where the member has provided informed consent for advice they do receive.
Advisers remunerated via collective mechanisms, who are not lumbered with massive regulatory red tape that other advisers must comply with (as in this article), would be the beneficiaries of a major competitive advantage, which is fast developing into an industrial unfairness issue.