FASEA will be disbanded and have its role divided up between Treasury and ASIC’s Financial Services and Credit Panel (FSCP) – which will become the industry’s long-awaited single disciplinary body – in a raft of changes to the advice industry announced today by the Morrison government.
Separately, fee disclosure statements and annual ongoing fee renewals will be merged into a single document as part of several amendments presented to parliament today in the second Bill implementing recommendations from the Hayne Royal Commission.
In a stunning set of developments, the office of Treasurer Josh Frydenberg and the assistant minister for financial services, superannuation and technology, Jane Hume, presented the financial sector reform Bill to parliament in the morning before working to get the FASEA announcement out in the late afternoon.
The measures hit two birds with one stone, implementing key planks of the Hayne Royal Commission recommendations while easing the regulatory burden on the industry by reducing compliance.
In a note to Professional Planner, Hume said the reforms announced today “will ensure Australians can continue to access good quality affordable advice at all stages of their life”.
SDB to replace FASEA
FASEA’s demise was anticipated as the authority’s role was always going to be minimised once all advisers either met the educate mandate by 2026 or left the industry.
The FSCP, which currently administers banning orders within ASIC, will have its role expanded dramatically to incorporate advice disciplinary functions as well as take over FASEA’s administration of the adviser exam.
“Expanding the role of the FSCP will leverage its extensive expertise and existing governance structures, avoiding the need to establish a new body to perform this role,” Frydenberg and Hume said in a joint release.
“Consolidating this new function within ASIC will also avoid regulatory overlap and minimise the possibility of multiple investigations by multiple agencies into the same conduct related to the provision of financial advice.”
Treasury will take up FASEA’s standard-setting functions, which will give it the ability to set and amend standards directly by legislative function.
Hume thanked FASEA for the “significant” work it had done in setting up the Code of Ethics, administering the adviser exam and overseeing the education qualifications process.
“With FASEA’s foundation work now largely complete, the time is right to for the process to be streamlined,” she told Professional Planner.
Cornerstone compliance consolidation
Instead of providing clients with an FDS annually and an OSA (or fee renewal notice) every two years, advisers will soon no longer need to provide separate notices.
Both will be provided in one document on an annual basis, and will include a summary of the previous years’ fees as well as an estimate of fees for the coming year. Advisers will have 60 days after the renewal ‘anniversary date’ to provide the renewal document, after which civil penalties may be levied.
A 120-day ‘renewal period’ for the client to sign the annual agreement will begin on the anniversary date, regardless of when the renewal is handed to the client. If a client has not signed the renewal within a further 30 days – 150 in total – the client fees must be switched off.
If legislated, the new rules will start on 1 July, 2021, with a subsequent 12-month transition period. They will apply to all clients, even if their original advice contracts are pre 1 July, 2013 – when the Future of Financial Advice reforms were implemented.
While the move from biennial to annual ongoing fee renewals was an expected application of Hayne’s recommendation, combining this document with the FDS will come as a welcome surprise to advisers and a win for industry associations and other stakeholders who lobbied the government to consider consolidating the cornerstones of compliance.
“The new fee arrangements will enhance the ongoing fee arrangement framework and reduce the risk for the fee-for-no-service conduct – a problem highlighted in the Royal Commission,” Hume said. “Disclosure statements will give clients valuable information about the fees they are paying and services they are receiving so they can make a meaningful assessment of their ongoing fee arrangements.”
Both the Association of Financial Planners and the Financial Planning Association acknowledged the Bill, with FPA CEO Dante De Gori calling the amendments a “promising development” and AFA CEO Phil Kewin noting that while it doesn’t reflect all of the associations’ recommendations, “it does include some elements”.
Another major lobbyist was ex-BT advice leader and current Xplore Wealth CEO Michael Wright, who made the case for a consolidated FDS and OSA to ASIC in April this year.
Hume said the industry must work together with consumers and small businesses to now find ways to improve the availability, affordability and quality of advice.
“We have listened and found a way through to lift standards while removing regulatory overlap and unnecessary red tape,” she added.
As expected, the Bill also follows through with Hayne’s recommendation that advisers provide clients with a document outlining their “lack of independence” if they are in receipt of commissions, volume-based payments or “other gifts or benefits” from product issuers.
The change will require firms that accept commissions for insurance advice to disclose the fact to clients upfront – a move which may force some to reassess whether commissions-based insurance advice is worth retaining in their business, especially considering these commissions have already been slashed as part of the Life Insurance Framework reforms.
It’s unclear yet who else will need to provide the disclosure, with some pundits estimating that the combination of managed accounts, insurance commissions and asset-based remuneration will affect 99 per cent of advisers.
The Bill also addresses advice fees in superannuation as expected, with trustees to be prohibited from charging members advice fees (other than intra-fund fees) unless they have the member’s consent.
The proposed changes will need to be debated in the House of Representatives in the new year as today was the final parliamentary sitting for 2020. Assuming it goes through in its current form the Bill will then need to pass through the senate to become law.