ASIC has released a consultation paper concerning the approval of codes of conduct relating to the opt-in requirement under the Future of Financial Advice (FoFA) measures (Consultation Paper 191). It has also reaffirmed that it will take a “facilitative” approach to the implementation of FoFA during the first 12 months, from 1 July 2013.
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 the paper, ASIC consults on the approach it proposes to take in assessing codes which are submitted to it for approval.
While ASIC is amenable to approving codes that deal specifically with the opt-in requirement, ASIC does not appear to 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 relation to the content of a code, the term “obviate” means to make unnecessary. This is a demanding test. In this context, ASIC has identified three possible approaches to the content of a code:
- Variant of opt-in requirement: Have an opt-in requirement but allow a longer period for clients to opt-in, coupled with additional obligations under the code. The additional obligations suggested by ASIC include a commitment that the advice services will be “commensurate” with the fees charged.
- Ban on specified fees: Ban ongoing asset-based or volume-based fees for personal advice given to retail clients, coupled with addition obligations under the code. The additional obligations are not specified and, in view of the fact that the client will get a disclosure statement every year, it is hard to ascertain what additional obligation should be imposed in this case.
- Fees paid “directly”: Require the adviser to remind the client regularly of their ability to opt out, coupled with a requirement that the client “actively” pay the adviser’s fees, for example by cheque or credit card. The first part of this approach could be achieved by the Government making a regulation which requires the reminder to be included in the annual disclosure statement. The key element of this approach appears to be that the ongoing fee must be paid directly, and not by deduction from a product.
ASIC says that an approved code might need to include a combination of these approaches together with other requirements.
Submissions on the consultation paper close on 4 December 2012 with a regulatory guide to be issued in February 2013. ASIC says that, in the absence of a decision to be bound by FoFA before 1 July 2013, the earliest date by which an adviser will need to comply with the opt-in requirement, or join an approved code, is 1 July 2015.
ASIC’s “facilitative” approach
ASIC says it will adopt “a measured approach where inadvertent breaches arise or systems changes are underway, provided industry participants are making reasonable efforts to comply”.
It is not clear what is meant by “a measured approach”. Presumably it is not meant to imply that ASIC will take a drastic approach if the breach is not inadvertent.
The fact remains that many of the FoFA provisions are civil penalty provisions. Breach of such provisions can have consequences quite apart from ASIC taking action. A person who suffers loss may be able to take action, either alone or as part of a class action.
ASIC’s proviso that industry participants should be making reasonable efforts to comply suggests (if the point needed making) that it would be unwise for a participant to leave its FoFA efforts to the last minute.