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21-134MR ASIC releases guidance on ongoing fee arrangements
ASIC has today released an information sheet (INFO 256) on ongoing fee arrangements to provide greater clarity to financial advisers and advice licensees on their obligations when providing personal advice to retail clients.
This follows recent changes to the law that will take effect on 1 July 2021 (refer Background).
INFO 256 answers frequently asked questions about the obligations that apply to fee recipients in relation to ongoing fee arrangements, fee disclosure statements (FDSs), and ongoing fee consents.
In developing this guidance, ASIC has taken into account the financial advice industry’s response to recent ASIC consultations, including Consultation Paper 332 Promoting access to affordable advice for consumers (CP 332). Industry has asked for shorter, simpler, and more user-friendly regulatory guidance from ASIC. As a result, INFO 256 will replace Regulatory Guide 245 Fee disclosure statements, which will be withdrawn.
Today, ASIC has also released consequential amendments to RG 175 Licensing: Financial Product Advisers-Conduct and Disclosure (RG 175). The updated RG 175 reflects new advice obligations introduced into the Corporations Act 2001, following the Financial Services Royal Commission. It includes an example of the lack of independence disclosure statement to help advisers understand the requirements in ASIC Corporations (Disclosure of Lack of Independence) Instrument 2021/125 (see details below).
The Financial Services Royal Commission Final Report made a number of recommendations to address consumer harm resulting from fees for no service 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. On 25 March 2021, ASIC made three legislative instruments to implement aspects of these Royal Commission recommendations (refer 21-058MR).
On 13 May 2021, the Government made the Financial Sector Reform (Hayne Royal Commission Response—Advice Fees) Regulations 2021.
On 11 June 2021, the Government also announced that a new regulation will be made to assist advisers with meeting their existing obligation to provide an FDS during the transition year.
ASIC will update INFO 256 to reflect the new regulation after it is made. ASIC will also make consequential amendments to other regulatory guidance to reflect the new obligations, including Regulatory Guide 182 Dollar Disclosure (RG 182) and Information sheet 228 Limited AFS Licensees – Advice conduct and disclosure obligations (INFO 228).
On 24 June 2021, the Government made the Treasury Laws Amendment (Miscellaneous and Technical Amendments) Regulations 2001, which commence on 1 July 2021.
ASIC has updated INFO 256 on ongoing fee arrangements to reflect the new regulation. ASIC has also made consequential amendments to Regulatory Guide 182 Dollar Disclosure (RG 182), Regulatory Guide 255 Providing digital financial product advice to retail clients (RG 255), and Information Sheet 228 Limited AFS Licensees – Advice conduct and disclosure obligations (INFO 228).