ASIC has finalised its regulatory guidance concerning the approval of codes of conduct relating to the opt-in requirement under the Future of Financial Advice (FoFA) measures. The guidance is contained in a reissued version of Regulatory Guide 183 Approval of financial services sector codes of conduct (RG 183).
Under the opt-in requirement, an adviser who has an ongoing fee arrangement with their client must get their client to renew the arrangement every two years. If the client does not opt-in, the arrangement terminates.
ASIC may grant relief from the opt-in requirement if it is satisfied that an adviser is bound by a code of conduct which has been approved by ASIC and which “obviates” the need for compliance with the requirement. In RG 183, ASIC sets out the approach it will take in assessing codes which are submitted to it for approval.
The term “obviate” means to make unnecessary. This is a demanding test. In this context, ASIC has said any code must achieve “substantially the same policy outcomes” as the opt-in requirement, which it describes as: “to protect disengaged clients from paying ongoing financial advice fees where they are receiving little or no service”.
ASIC expects a code to include content that deals with the following three matters. If a code does not meet ASIC’s expectations, an alternative approach should be proposed.
Entering into an ongoing fee arrangement
The code should require the adviser who subscribes to the code to assess whether it is suitable to provide ongoing services to the client and ensure the proposed services are relevant to the advice given to the client and their financial circumstances. The subscriber should also be required to obtain the client's agreement to the ongoing fees and services which should be set out in a client engagement letter (or similar) and should cover matters specified in RG 183.
Delivering services under the arrangement
The subscriber should be required to “actively engage” with clients and provide services that are commensurate in value with the fees charged. They should also be required to conduct a regular or annual advice review for clients under an ongoing fee arrangement and to document and keep records confirming service delivery and client reviews.
Renewing the arrangement
The code should require an ongoing fee arrangement to be renewed with the client at least every three years (as compared with every two years under the opt-in requirement). The renewal arrangement does not have to match the opt-in requirement under the law. For example, there may be different requirements about how advisers communicate with their clients and a wider range of options about how they seek the client’s consent to the ongoing arrangement. Nevertheless subscribers should document and keep records confirming the client’s consent to the terms, fees and scope of the renewed arrangement.
Register of subscribers and compliance with the code
ASIC expects the code administrator to maintain a public, up-to-date register identifying all persons bound by the code. The register must be available online and include details specified in RG 183.
ASIC expects that a code will set out appropriate remedies and sanctions for non-compliance and will state when an adviser’s subscription to the code will be terminated. ASIC also expects termination of any subscriptions to be reported immediately to it and (where relevant) to the AFS licensee and that the register of subscribers will be updated promptly.
Codes specific to licensees or dealer groups
In its consultation paper, ASIC said it would not be amenable to approving codes that are sponsored by a single AFS licensee or dealer group or by a small number of licensees or dealer groups. In RG 183, ASIC has said it will not consider an application for approval of a code that is sponsored by a single AFS licensee or dealer group. While this appears to have left open the question of whether it might consider a code sponsored by a small number of licensees or dealer groups ASIC confirmed its disapproval of such an approach in its “Response to Submissions on the Consultation Paper”.