Relief from the fee consent regime will be one of the major wins for advisers from the Quality of Advice Review, but Financial Advice Association head of policy Phil Anderson said the needle needs to move further.
The government has accepted the Quality of Advice Review recommendation to streamline fee consent into a single form, but Anderson said doing this will be challenging.
“Maybe we’re not aiming far enough, maybe the real outcome here is the client is able to press a button and say ‘I agree to this this’ and there are no paper based forms [and] it’s electronically sent to the product providers immediately. We’ve got to be clear on our goals here,” Anderson said at a breakfast hosted by compliance firm Holley Nethercote.
The fee consent rules came into effect in 2021 and require advisers to obtain written consent from clients before they can deduct fees from the client’s account, and to review ongoing fee arrangements each year.
Infocus has been working on an app to help streamline the fee consent process and regardless of whether the QAR reforms change the regime, the app will still function as a digital consent portal, which the licensee identified as a technology function much of the industry is lagging on.
However, much of the contention in the fee consent regime has been the lack of industry standardisation.
The proposed change to fee consent isn’t the only relief from the government’s QAR response, with the minister accepting Recommendation 5 of the review to remove the safe harbour steps, despite previously expressing opposition to doing so.
Holley Nethercote managing partner Paul Derham said the safe harbour in its current form leaves the adviser to prove they have complied, but without it the onus goes back onto the regulator.
“ASIC has done that before in reports and found around half the [Statements of Advice] that it looked at might have been in the best interest of the client under the wider best interest duty test, but didn’t prove the adviser had gone through those steps,” Derham said.
“If we take away safe harbour the onus would be on ASIC to prove the advice is not in the best interests of the adviser’s client. It’s a little bit harder for a regulator, AFCA or the court to show the adviser has failed at this best interest test if we remove the safe harbour.”
Derham noted the best interest obligations for company directors, trustees of managed investment schemes, and mortgage brokers have no safe harbour requirement.
Interestingly, Holley Nethercote special counsel Zoe Higgins identified a potential flaw in QAR lead Michelle Levy’s good advice duty that has similarities to the controversial catch-all Step G in the safe harbour.
“There’s going to be further consultation on [the introduction] of the good advice duty… I don’t know how likely that is to come in,” Higgins said.
“There’s a lot of talk about when we say ‘good advice’ is something that’s fit for purpose and is otherwise good, is that the new catch-all step that we had under item G of the safe harbour?”
Higgins added that overall, the QAR changes are not going to have a materially negative impact on the regulatory framework.
“We’re not going into the wild, we’re going to be in a position where the standard of advice, as a result of these related obligations is still higher than it was pre-FOFA,” Higgins said, referring to the Future of Financial Advice reforms implemented in the past decade.
Making a statement
The simplification of SOAs has been another key recommendation from the review, and while Anderson noted comments made by AFCA stating they are comfortable with simpler SOAs, he acknowledged the concerns from industry that licensees and PI insurers haven’t shown the same level of comfort.
“Licensees need to be comfortable to make these changes; ASIC need to make licensees comfortable to make these changes,” Anderson said.
However, he added that he doesn’t believe PI insurers are that focused on what is in the SOA.
“They’ll be very interested in where we land in terms of the best interest duty and how you demonstrate the advice is compliant [with the duty], because that is what will swing cases either positively or negatively,” Anderson said.
My Dealer Services director Alex Euvrard said the advice process is what determines the outcome of an AFCA or PI dispute.
“It frustrates me that we have a conversation around PI and ASIC about an advice document,” Euvrard said.
“In the last three or four years everything has become so focused on this document and we’ve forgotten largely about the advice that has been given.”