ASIC has made three legislative instruments that deal with advice fee consents and independence disclosure following Royal Assent of the Financial Sector Reform (Hayne Royal Commission Response No.2) Act 2021 (the Act) earlier this month.
The Act was passed by the Parliament to give effect to recommendations by the Financial Services Royal Commission (Royal Commission) (see Background). It provides for ASIC to make legislative instruments setting the requirements for:
- the written consent that a fee recipient must obtain from a client before deducting, or arranging to deduct, advice fees from a client account as part of an ongoing fee arrangement (Recommendation 2.1);
- the disclosure of lack of independence that an Australian Financial Services (AFS) licensee or authorised representative must give clients where they would breach s923A of the Corporations Act if they used words such as “independence”, “impartial”, or “unbiased” (Recommendation 2.2); and
- the written consent that a superannuation trustee must obtain from a member before deducting advice fees from a superannuation account under a non-ongoing fee arrangement (Recommendation 3.3).
In finalising the legislative instruments, ASIC took into account industry feedback on the proposals in Consultation Paper 329 Implementing the Royal Commission Recommendations: Advice fee consents and independence disclosure (CP 329), which was released in March 2020.
ASIC considers that the legislative instruments strike an appropriate balance between minimising regulatory burden for the financial advice and superannuation industries and ensuring that consumers receive the information that is relevant to them.
ASIC does not have powers to provide exemptions from the new advice fee consents and independence disclosure requirements or to modify how the requirements apply. ASIC can only specify requirements for the advice fee consents and the form of the disclosure of lack of independence.
To help licensees comply with the new requirements, ASIC has published examples of the written consent forms. Additional information to help superannuation trustees comply with their new obligations will be provided in a follow-up to the April 2019 joint letter from ASIC and APRA and will be released in the next few months.
Today, ASIC has also released Report 687, which highlights the key issues raised in submissions to ASIC on CP 329 and details ASIC’s responses on those issues.
The Royal Commission Final Report made a number of recommendations to address consumer harm resulting from fees for no service, erosion of superannuation balance through inappropriate advice fees and poor advice from financial advisers whose duty to their client conflicts with their own interests. To address these issues, the Royal Commission made recommendations to:
- introduce annual renewal of ongoing fee arrangements and a requirement that AFS licensees cannot deduct ongoing fees without the client’s consent (Recommendation 2.1);
- introduce a requirement for AFS licensees to disclose their lack of independence where they would contravene s923A of the Corporations Act if they used the restricted terms “independent”, “unbiased” and “impartial” (Recommendation 2.2); and
- limit advice fee deductions from superannuation choice accounts (Recommendation 3.3).
The Government implemented Royal Commission Recommendations 2.1, 2.2 and 3.3 in the Financial Sector Reform (Hayne Royal Commission Response No.2) Act 2021. The legislation received Royal Assent on 2 March 2021.
ASIC will consider updating existing regulatory guidance to reflect the new requirements in the Act before the reforms commence for new fee arrangements and the lack of disclosure statement on 1 July 2021.
- ASIC Corporations (Consent to Deductions – Ongoing Fee Arrangements) Instrument 2021/124) and Explanatory Statement
- ASIC Corporations (Disclosure of Lack of Independence) Instrument 2021/125) and Explanatory Statement
- ASIC Superannuation (Consent to Pass on Costs of Providing Advice) Instrument 2021/126) and Explanatory Statement
- Report 687 Response to submissions on CP 329 on advice fee consents and independence disclosure
- Example written consent form (ongoing fees) (PDF 137 KB)
- Example written consent form (non-ongoing fees) (PDF 88 KB)
- Frequently asked questions – Advice fee consent and independence disclosure