The long awaited first tranche of QAR has been tabled, and, as you can see from the commentary flying around, it leaves a bit to be desired and contains some large ‘misses’.
From what we see and hear, there’s a fair way to go on this one and the 1 July kick off looks unlikely. We will continue to watch it play out and really hope that we see a simplified framework in our lifetime!
What we are happy about
As usual, the devil is in the details, and there is a lot of it here. However, we particularly welcome more flexibility in the timing for getting OFAs/fee consents renewed and the adviser having much more flexibility in aligning dates to when they naturally meet with clients. Rather than the current tight timeframe of 60 days after the anniversary date to send out documentation (where you are stuffed if you want to give this to the client when they come in earlier) and 120 days after the anniversary date to get it all back signed, the proposed changes will allow advisers a flexible timeframe starting from 60 days before the specified date through to 150 days after the specified date. Due dates will also be able to be aligned to fit a firm’s operating cycle, for instance, having specified dates aligned to 30 June.
The Bill allows the Minister to prescribe certain forms that will be mandatory to use. This goes a long way to creating a standardised industry approach, which is currently a major pain point (but see our further commentary on this below).
While renewals/consents will still need to set out the nature of services the fee recipient will deliver, the look back component of the FDS will be scrapped, which will result in a massive sigh of relief for all involved.
Clarity about deduction of fees from super is welcome. However, one item to note is the subtle shift from the current requirement that advice be ‘in relation to a member of the fund’ to the requirement that the advice is ‘wholly or partly about the member’s interest in the fund’ (meaning advice can cover things other than super but the adviser can only charge the proportion of the fee that relates to super advice to the client’s super account). Whilst this is a subtle change to the wording of the requirements, in our experience most advisers already apply this approach. What will be problematic is whether this results in more information being required to be given to the super trustee (see more on this below).
The 12-month transition framework also makes good sense and allows time for an orderly swap to the new format.
What still needs some improvement
As you would have been hard pressed to miss in recent commentary, whilst the fee consent format can be prescribed, this doesn’t mean that a super fund or product issuer will have to accept it without further information. This results in residual uncertainty and different product issuers having different additional requirements, therefore driving up operating costs for advisers (and therefore consumers).
We can see what is trying to be balanced is the industry need for standardisation against different product terms and product issuer obligations. Maybe what we need here is a statutory protection for product issuers, including super trustees, if they accept a consent in the prescribed form?
Big misses
The FSG changes are so complicated and unworkable that, in our view, they won’t be used and may as well be removed. The whole point of this change is to allow consumers to access relevant information currently included in a FSG from the financial services firm’s website. This sounds great. But when you throw in the restrictions that this only applies to personal advice and additional obligations like version control for certain content when a website is generally updated pretty regularly, and a page may include both regulated and unregulated information, it’s all just too hard. We proposed a much simpler option in our submission, which you can see here:m QAR submission and it is a pity this was not adopted in the Bill we see before us.
For noting
Obtaining informed consent to insurance commissions is not a new one for advisers. Informed consent to all benefits has been front of mind since the introduction of the Code of Ethics. However, the Bill does introduce some more detail on this front that advisers will need to carefully review and incorporate into process and documentation if the Bill is passed in its current form.
The information that must be disclosed to a client before an adviser obtains informed consent has been expanded. In particular, the adviser must disclose the ‘nature of any services that the AFS licensee or authorised representative will provide the client in relation to the relevant product’ – a historically ‘murky’ topic. The adviser must ensure they have a written record of the client’s consent,
but there is no requirement that the consent itself is in writing, and there is no prescribed form for the consent. Importantly, the Explanatory Memorandum notes that the intention of the consent requirement is to ‘instigate a conversation between the adviser and the client’. Either a formal written agreement or an email that records a conversation with the client would meet the records requirement. A copy of the record must be given to the client as soon as reasonably practical after it is obtained.
The consent can be transferred in the case of a full or partial sale of business. However, purchasers will need to ensure that they do due diligence to ensure that the consent obtained by the previous business met all requirements and to check over what promises were made to clients in disclosure prior to and as part of consent being received (as they’ll be on the hook to deliver these).
Next steps
Whilst the advice industry is desperately needing the reduction of red tape, it would be prudent to spend the time to get this right rather than having another round of changes that don’t quite hit the mark, and in some cases, cause further angst.
Despite all of this, what everyone is really waiting for is the remaining QAR promises and most of all, reform to the way advisers can document their advice.