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In spite of delays in 2020 due to COVID-19, the recommendations of the Hayne Royal Commission report are gradually bringing change to the regulatory framework for financial advice. So what do these changes mean for financial planners? Are there more changes to prepare for in the year ahead?
2020 brought the uncertainty and disruption of COVID-19 to all our lives. In addition to handling the inevitable changes to their businesses required by social distancing and other restrictions, many financial planners were also busy with additional study and preparing for exams. There was legislation waiting in the wings off the back of the Hayne Royal Commission, keeping financial planners in limbo with how these legislated changes would impact their businesses and delivery of advice.
Although there are still many unknowns for financial planners, including a resolution of just how ASIC and Treasury will be regulating financial advice activities in the longer term, our profession now has greater certainty and clarity on a number of important matters:
How fees are handled
Legislation changing fee disclosure, renewals and collection has been introduced into Parliament and will come into effect from 1 July 2021. However, there is a transition period of 12 months for financial planners to make sure their activities are compliant with this change to the Corporations Act.
To comply with the new requirements, financial planners must:
Renew ongoing fee arrangements annually.
For last year and the one to come, disclose in writing total fees which have been and will be charged and set out services that have been and will be provided.
Get written consent from a client before fees under an ongoing fee arrangement are deducted from that client’s account.
For any financial planning practices who have yet to update their fee schedules and processes, now is the time to get on top of things before the 1 July 2021 transition commences.
Visit the Treasury website to see guidance on the new legislation in more detail.
Before these changes were introduced, breach reporting requirements were mostly confined to reporting confirmed significant breaches. These new requirements ensure that all suspected and actual breaches by all AFSL holders will be reported more quickly, increasing ASIC’s ability to investigate breaches in a timely fashion to strengthen consumer protections.
Under the new ASIC guidance, failure to report a breach (or likely breach) will itself be considered a breach of your obligation to comply with financial services laws. This means that any financial planning practice should be taking proactive steps to monitor for likely breaches so they can comply with their obligations to be aware of and report any breaches to ASIC and clients affected.
Visit the ASIC website for their detailed guidance on breach reporting requirements.
Off the back of this new legislation, ASIC have invited submissions on their CP 335 Consumer remediation: Update to RG 256 consultation paper until 26 February 2021. They have also released a guide on consumer-centred remediation to help AFSL holders focus on designing and carrying out successful remediation programs. The main change under the new framework will be that all licensees will be required to enter into remediation programs where consumer detriment is identified, not just when directed to do so by ASIC.
Education standards and ethics
In their final update on results for 2020, FASEA announced 11,241 financial planners have passed exams held to date. This represents 52% of advisers on ASIC’s Financial Adviser Register (FAR), showing that more than half of our profession are now compliant with this part of the FASEA education standards. Hopefully this will give many financial planners more time to focus on transforming their businesses to meet new demands from regulators and the competitive landscape of financial advice.
Here are some of the areas our FPA policy team are keeping an eye on for further changes that could impact our profession:
The Federal Budget 2021/22
In the months following the next federal budget, we’re likely to see significant changes introduced to stimulate recovery in the Australian economy. We could also see some changes to superannuation legislation and regulation in response to the retirement income review released late last year. Plus we’re closing in on election year so there could also be some tinkering with economic and financial services sector policy to fund election promises and sweeteners over the course of the year.
2022 Review of Regulatory Framework for Financial Advice
The announcement of the abolition of FASEA in late 2020 has introduced some certainty concerning the regulatory framework for financial planning, in the short term at least. But with a review of the advice regulatory framework flagged for 2022, financial planners will likely see more sweeping changes to code monitoring, discipline and regulatory scrutiny over the course of the next 18-24 months, although hopefully with an eye to reducing regulation rather than expanding it further.
As has often been the case in our profession, we will be anticipating significant, ongoing changes in our environment even as we adapt to the current raft of new policies and standards. The FPA will continue to campaign and advocate for ongoing improvements in the interests of both high-quality and affordable advice for Australians and a sustainable operating framework for our profession.