ASIC has provided relief for members of the Financial Planning Association of Australia (FPA) who subscribe to the FPA Professional Ongoing Fees Code (the FPA Code) from compliance with the opt-in requirement. 

The relief is faciltated by ASIC's approval of the FPA Code.

The opt-in requirement was introduced as part of the Future of Financial Advice (FoFA) reforms and requires an Australian financial services (AFS) licensee or authorised representative who receives fees under an ongoing fee arrangement to provide personal financial product advice, to give the client a written renewal notice every two years which requires the client to opt-in to renew that fee arrangement.

The Corporations Act allows ASIC to exempt a person or class of persons from the opt-in requirement provided it is satisfied that those persons are bound by an ASIC-approved code of conduct that removes the need for persons bound by the code to be bound by the opt-in requirement.

The FPA Professional Ongoing Fees Code is a code approved by ASIC for the sole purpose of seeking relief from the opt-in requirement. Advisers who subscribe to the FPA Code get relief if they meet certain requirements when entering into ongoing fee arrangements, delivering services under an ongoing fee arrangement and renewing the arrangement. Advisers must still renew ongoing fee arrangements but are given flexibility to agree a renewal interval with the client provided the interval is not more than three years.

This is the first time ASIC has used its power to approve a code, limited or otherwise. 

ASIC approved the FPA Code on the basis it will achieve the same policy outcomes that the opt-in requirement is intended to achieve – that is, to protect disengaged clients from paying ongoing financial advice fee where they are receiving little or no service. 

A crucial part of the FPA Code is that the FPA will meet and maintain certain minimum Code governance requirements. In particular, the FPA has implemented  processes to ensure that subscribers do comply with the FPA Code. Sanctions will apply for non-compliance, including termination of subscription to the Code and the FPA member no longer having relief from the opt-in requirement. 

ASIC has the power to revoke its approval of a code where it is satisfied that the code no longer meets the requirements.

Background

Under s1101A of the Corporations Act, ASIC has the power to approve codes of conduct that relate to the activities of AFS licensees, their authorised representatives or product issuers.

Under s962K of the Corporations Act, introduced as part of the FoFA reforms, an AFS licensee or representative who receives fees under an ongoing fee arrangement for the provision of personal financial product advice must give the client a written renewal notice every two years, which requires the retail client to opt-in to renew that fee arrangement. This is known as the ‘opt-in requirement’. 

ASIC has the power under s962CA of the Corporations Act to exempt a person or class of persons from complying with the opt-in requirement if we are satisfied that the person is, or persons of that class are, bound by an ASIC-approved code of conduct that obviates the need for persons bound by the code to be bound by the opt-in requirement. We consider that a code will obviate the need for the opt-in requirement if it achieves substantially the same policy outcomes that s962K is intended to achieve - that is, to ‘protect disengaged clients from paying ongoing financial advice fees where they are receiving little or no service’.

Currently all advisers who receive fees under an ongoing fee arrangement must comply with the opt-in requirement.  Affected advisers who are members of the FPA should have already commenced issuing renewal notices for ongoing fee arrangements entered into after 1 July 2013.

ASIC has provided guidance on our approach to approving codes, including how to obtain and retain approval in Regulatory Guide 183 Approval of Financial Services Sector Codes of Conduct.