The Australian Securities and Investment Commission (ASIC) has released a consultation paper to determine how a professional code of conduct will obviate the need for a financial adviser to comply with opt-in provisions contained in Future of Financial Advice reforms.
As previously indicated, the code will need to "achieve substantially the same policy outcomes that the opt-in requirement was originally intended to achieve", according to ASIC's 'Consultation Paper 191: Future of Financial Advice: Approval of codes of conduct for exemption from opt-in requirement'.
As such, codes will need to "protect disengaged clients from paying ongoing financial advice fees where they are receiving little or no service", the ASIC paper stated.
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ASIC provided a non-exhaustive list of examples of code content, with the three main suggestions involving a complete ban on ongoing asset- or volume-based fees, regularly advising clients of their ability to opt-out, and allowing a longer period for clients to opt in.
According to the consultation paper, possible code provisions include a "ban on ongoing asset-based fees or volume-based fees for personal advice given to retail clients, combined with other specific code provisions".
This does not specifically address client engagement, and would need to be combined with other provisions, ASIC stated.
Another option would be to require advisers to regularly advise the client of their ability to opt out, also in combination with other specific code provisions.
ASIC also suggested codes could allow a longer period for clients to opt in, combined with other provisions such as
- documenting initial negotiations with the client about the ongoing fee arrangement;
- rules about how the instrument of authority for the adviser to charge fees is presented to the client, potentially through a separate authority document;
- commitment to provide ongoing advice services in line with fees above and beyond generic services such as newsletters; client engagement strategies such as annual client review meetings; and
- providing details about when and how an ongoing fee arrangement must be renegotiated.
Submissions to CP 191 close on 3 December.
Once regulation has been finalised there will also be upgrades to 'Regulatory Guide 183: Approval of financial services sector codes of conduct'. Codes of conduct obviating the need for opt-in will not be considered until this legislation is finalised.
Codes submitted for approval should also exceed rather than simply restate current legal obligations, ASIC stated.