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Financial Services - Quality of advice review update

The government is yet to release its final response to the QAR review, which was tabled to arrive by the end of this year. However, it has released the first tranche of draft legislation aimed at around half of the recommendations, and submissions will close on 6 December on these.

Not surprisingly, most of these recommendations are those that were accepted in the June response, and most that were “accepted in principle” are still to come (including SOA modification).

An important change in the draft exposure document is the streamlining of the consents and renewal process for Ongoing Fee Arrangements (OFA) and the scrapping of the enhanced Fee Disclosure Statement (FDS).

Our review of the draft legislation suggests that the OFA process has not only been streamlined, but the legislation is, in most places, easier to follow.

The explanatory memorandum says:

"Providers should still be required to obtain their client's consent on an annual basis to renew an ongoing fee arrangement, but they should be able to do so using a single 'consent form'.

The consent form should explain the services that will be provided and the fee the adviser proposes to charge over the following 12 months. The consent form should also authorise the deduction of advice fees from the client's financial product and should be able to be relied on by the product issuer. The form should be prescribed.

The objective of this recommendation is to streamline the requirements for ongoing fee arrangement and fee consents, while ensuring that consumers see and agree the fees they are paying their financial adviser."

The Act sets out :

o what is required to be provided to the client before consent for an ongoing fee arrangement is obtained (s962E (3)), which is like the old forward looking FDS and no look back is required.

o what must be in the consent to an ongoing fee arrangement (s962E (1)).

o the requirements for consent being obtained prior to deducting a fee under an ongoing fee arrangement (s962T).

o that a form or forms will be prescribed for the purposes of the above consents,

Importantly, it is now in the Act that one form can be combined to cover more than one purpose (consent to the OFA and authorising fees).

However, despite consent being given in an approved form, an account provider (other than the fee recipient) may request additional information from the fee recipient before deducting ongoing fees from an account.

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