New Retail Personal Advice Requirements Start 1 July 2021

Share on facebook
Share on twitter
Share on linkedin

Major changes commence on 1 July 2021 for those providing personal advice to retail clients. 

New Ongoing Fee Arrangement (“OFA“) obligations and consents for deduction of ongoing fees are being introduced. Financial Services Guides will also need to be updated to disclose whether providers meet the definition of “independent”.

Action Steps for Personal Advice Providers:

Updates to Financial Services Guides (“FSG“)

  • A lack of independence disclosure statement must be included in FSGs from 1 July 2021 if you do not meet the requirements under s 923A of the Corporations Act.
  • ASIC requires firms to articulate the reasons why they are not independent according to their particular business model, however have provided some examples:
    • The providing entity’s AFS licensee, or another authorised representative that is authorised by the providing entity’s AFS licensee, receives commissions, volume-based payments or other gifts or benefits;
    • The entity receives commissions on the provision of advice for life risk insurance products and the commissions are not rebated in full to clients; or
    • The providing entity is wholly owned by the issuer of financial products that the entity gives personal advice about to retail clients.
  • The statement must:
    • appear on the first substantive page of the FSG that contains the statement;
    • appear within a box under a bold heading that includes the phrase “Not Independent”, “Lack of Independence”, or another phrase of like import;
    • be in a font size that is at least the same font size as that predominantly used for other text (if any) in the FSG; and
    • not appear in a footnote.
  • Where you have given a FSG to a client prior to 1 July 2021 and plan to continue to provide financial services to the client on or after 1 July 2021, you must provide an updated or Supplementary FSG to the client prior to further providing the financial service to them if you do not satisfy requirements under s923A. In those circumstances, the updated or supplementary FSG needs to disclose your status in respect of ‘independence’ and the reasons why.
  • Refer to RG175.127 and ASIC’s helpful example of how to disclose a lack of independence.

Provision of a Fee Disclosure Statement (“FDS“)

  • FDSs must be provided to clients no later than 60 days after the anniversary day of the OFA each year. ‘Anniversary day’ is the anniversary of the day on which the OFA was entered into (s 962G(3) of the Corporations Act).
  • The new FDS must include the following:
    • information about fees charged in the previous 12 months;
    • fees which will be charged in the upcoming 12 months and the services which will be provided;
    • a statement that the client may renew the OFA by giving notice, how notice can be given and the timing for the renewal period (120 days beginning on the anniversary day); and
    • a statement that the client will be taken to have elected not to renew the OFA if they do not give notice prior to the expiry of the renewal period.
  • Transitional Arrangement: for OFAs that are entered into immediately before 1 July 2021, you must give the client a FDS between 1 July 2021 and 30 June 2022 (“the transition period”). In those circumstances, the day which you provide a FDS is the anniversary day. A FDS you provide during the transition period must cover information for the previous year (a 12-month period that ends just before the transition day for the arrangement) and the upcoming year (a 12-month period that begins on the transition day for the arrangement).

Obtaining New Written Consent

  • You must obtain consent from your client before you can deduct, arrange to deduct, or accept the payment of, fees under an OFA unless the client’s account is linked to a credit card or is a basic deposit product. For more information, see s962R(1)(c) and 962S(1)(c) of the Corporations Act.
  • Consent must be express written consent and must be received from all account holders.
  • Consent provided by a client will expire 150 days from the anniversary day.
  • Transitional Arrangement: for OFAs that are entered into immediately before 1 July 2021, you must obtain express written consent from your client before deducting, arranging to deduct, or accepting the deduction of ongoing fees under the arrangement from 1 July 2022 or onwards. Note that a client can still choose to provide their written consent to you before 1 July 2022.
  • Please refer to ASIC’s Infosheet 256 (Questions 24-35) for specific requirements for obtaining consent from a client to ensure your procedures are up to date prior to 1 July 2022. ASIC have also provided an example form of consent
  • You should also ensure your staff are aware of the new requirements.

Background and Links

ASIC has released Infosheet 256 which answers a number of frequently asked questions about the changes. The changes have also led to changes in RG175. Be sure to read those in order to understand the amendments in depth.

These changes stem from by the Financial Sector Reform (Hayne Royal Commission Response No. 2) Act 2021. ASIC has subsequently made legislative instruments that deal with advice fee consents and independence disclosure. The ASIC instruments take into account industry feedback received by ASIC on the proposals contained Consultation Paper 329: Implementing the Royal Commission Recommendations: Advice Fee Consents and Independence Disclosure which was released in March 2020.

Useful Links:

Contact Us

Please contact us if you require assistance with understanding and implementing your obligations.

About The Author

Alicia Pevely

Alicia Pevely

An integral member of the Sophie Grace team since 2012, Alicia has extensive experience in relation to financial services law, consumer credit law, regulatory matters and ASIC investigations. Working closely with her clients, Alicia has maintained a significant emphasis on AFS and credit licensing and liaising with ASIC. As General Manager, Alicia has oversight of all licence applications and provides advice and support in relation to more complex applications.  

Obligation Free Consultation

We will call you back ASAP!

Recent Updates