Make annual opt-in flexible, workable says AFA

Biennial opt-in arrangements should be retained for low fee-paying clients who have less frequent interactions with their financial advisers.

That is one of the key recommendations contained within an Association of Financial Advisers (AFA) discussion paper on annual renewal and payment options in response to recommendations made by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

As well, the AFA has expressed its strong opposition to product providers obtaining opt-in authorisation directly from clients and has argued that proof of client authorisation should only be required of product providers every three years.

The AFA is arguing that flexibility is needed in recognition that some clients will simply not be able to afford a full annual review and renewal service.

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It said that on this basis, there could be transition to an annual opt-in model for the majority of clients, but with biennial arrangements being retained for clients paying lower fees and who have less frequent financial advice needs.

The AFA is recommending a formula for the introduction of the annual review in the following fashion:

• The client should be allowed to renew at any time between the point nine months after the last renewal date and 15 months after the last renewal notice day. The new renewal notice day would continue to be 12 months since the previous renewal date, so the concept of annual renewal would be preserved. Thus, the official renewal notice day will stay on a fixed date;
• If the client has not renewed by the end of the 15th month, then the fee arrangement would terminate one month later at the 16 month mark, as broadly reflects the current process. Clients would retain the right to cancel the ongoing fee arrangement at any time;
• The fees expected to be paid in the next year, as set out in the new renewal notice, could be based upon an estimate and not be binding, where the client’s needs change; and
• Product providers should be required to obtain a copy of the client authorisation from the financial adviser for the continuation of advice fees every third year.

The AFA document stated: “We do not believe that, given the adviser’s obligation to obtain approval from the client every year, that the product provider should be required to obtain it any more frequently than every third year”.

“It is noted that the client may have multiple product holdings and the cost of separately preparing and providing an authority to each product provider would be significant. A three-year authorisation cycle would reduce unnecessary cost.

“We also strongly oppose any requirement for product providers to seek authorisation directly from the clients. Ideally, a systems solution can be developed to streamline the provision of these authorisations to product proposals.”