The Federal Government has released the first tranche of its Future of Financial Advice legislation, confirming a two-year opt-in backed by fines of up to $250,000 for corporate breaches and the signalling of a ban on asset-based fees with respect to gearing.
But the legislation has ceded ground to the industry on commissions on individually advised risk products, the grandfathering of some volume bonuses, and potential limits on the use of the ‘financial planner’ title.
Releasing the draft legislation today, Assistant Treasurer Bill Shorten also chose to accept controversial modelling produced by actuarial consultancy, Rice Warner, suggesting opt-in would cost just $11 per client.
The first tranche of the draft legislation covers opt-in, best interests duty, and an increase in the Australian Securities and Investments Commission’s powers. The second part of the legislation, to be released some time next month, will contain provisions relating to the ban on conflicted remuneration, a ban on asset-based fees, and the definition of intra-fund advice.
The Government has chosen to headline the release of its draft legislation with the best-interests obligations, and the fact it will impose obligations on licensees, while carrying a breach penalty of $250,000 for individuals and $1 million for corporate entities.
On opt-in, it states that from 1 July next year advisers will need to provide a renewal notice every two years, as well as an annual fee disclosure statement including the dollar amount of fees.
The legislation will also provide scope for clients to clawback fees if they were not seen to appropriately opt in, and provides for penalties of up to $50,000 for individual breaches and $250,000 for corporate breaches.
Consistent with an announcement he made at the Financial Services Council conference earlier this month, Shorten confirmed that commissions would remain in place for individually advised risk products with respect to self-managed superannuation funds and Choice products.
However, he said by 1 July, 2013, the industry would be required to unbundle disclosure so the dollar percentage value of commissions was disclosed for all new and renewed policies – something that would enable customers to see the impact of commissions on their premiums.
Shorten said the Government would work with industry and consumer groups to introduce uniform clawback provisions to remove the incentive for some advisers to shop around for the most generous clawback arrangements.
He said upfront commissions had the potential to increase churn, while level commissions on replacement policy were an effective way of addressing the issue.
