Financial Services - Quality of Advice Review Update, part 2

For financial advisors providing ongoing service arrangements, the consent and renewal period provisions in the Corporations Act are rather ungainly.

Currently, the enhanced Fee Disclosure Statement (FDS) with renewal must be provided no later than 60 days past the 12 month anniversary of the Ongoing Fee Arrangement (OFA). However, the OFA must be renewed in writing within the 120 day renewal period after the anniversary date.

If the client does not renew the OFA during the 120 day renewal period, the OFA terminates 30 days later (150 days post anniversary date). For the separate consent required for fee deduction, this consent ceases to have effect at 150 days post anniversary if no further consent is obtained.

In the proposed legislation, the new renewal period for OFAs is 150 days (5 months!) past the anniversary date. There is no separate requirement for any disclosure document to be sent out earlier. Further, as noted in our previous post, one form can suffice for OFA renewal and fee deduction consent.

In the draft legislation, the Act is now more explicit on when consent can be obtained. It names two distinct time periods, being:

o before an ongoing service agreement starts, or

o if for a renewal, in the renewal period following the annual anniversary date.

If given in the renewal period, the consent will cover the period that starts immediately after the end of that renewal period and ends at the earlier of:

(i) the end of the following renewal period; or

(ii) when the arrangement is terminated.

This means, that like under the current law, the anniversary and the renewal period each year does not change. For example, if the arrangement was to start on say 5 December 2023, the anniversary date is 5 December 2024. The renewal period is then going to be 5 December 2024 to 3 May 2025. Although the anniversary date is 5 December, it will actually be 3 May each year that the new consent kicks in.

As noted above, although advisers will not now need to provide a FDS looking back at the past 12 months of services, the new legislation still appears to restrict advisers from obtaining the ongoing consent prior to the next anniversary date, for the period to then begin on the anniversary date.

Some would suggest that this addition would be a common-sense approach, particularly factoring in annual reviews. Perhaps the added flexibility will be included in the final version of the changes.