The federal government has released consultation draft legislation on a further 22 recommendations from the financial services royal commission, but has been urged to consider the impact on financial advisers and the provision of advice.
The recommendations were released by Treasurer Josh Frydenburg and cover the provision of financial advice, the role of superannuation fund trustees, the sale of life insurance and superannuation products, and the oversight of the superannuation sector.
Recommendations specifically related to the provision of financial advice include:
- recommendation 1.15 to strengthen the existing code of conduct framework in the financial services sector to enable certain provisions of financial services industry codes to be made ‘enforceable code provisions’, which, if breached, may attract civil penalties, and to create a new mandatory code of conduct framework,
- recommendation 2.1 to enhance the existing ongoing fee arrangement provisions,
- recommendation 2.2 to require entities who are authorised to provide personal advice to a retail client to disclose in writing to the client where they are not independent and why that is so,
- recommendation 2.7 to establish a compulsory scheme for checking references for prospective financial advisers,
- recommendations 2.8 and 7.2 to strengthen breach reporting requirements for Australian financial services licensees, and
- recommendation 2.9 to require Australian financial services licensees to investigate misconduct by financial advisers and appropriately remediate clients affected by the misconduct.
The royal commission made 76 recommendations, of which 54 were directed to the government, 12 to the regulators and 10 to the industry, and Frydenburg said the government had implemented 16 recommendations, with legislation before parliament to implement a further eight recommendations.
He added the government planned to have any legislation that was required for the recommendations directed to it from the royal commission introduced into parliament before the end of 2020.
The Financial Planning Association of Australia (FPA) has, however, stated if the recommendations are introduced as outlined by the commission, it would have a negative impact on financial planners and advisers.
The FPA noted recommendation 2.1 would change the requirement for financial planners and advisers to renew client fee arrangements to every 12 months, rather than the current two-year period.
FPA chief executive Dante De Gori said: “The FPA agrees financial advisers should be required to periodically review and renew ongoing fee arrangements, document them and seek the consent of their clients for any fees to be charged.
“However, we believe requiring this to be conducted annually without any modification to the laws around when an ongoing fee arrangement can be renewed rather than reset, adds considerable time and cost pressures on financial planning practices. It is not practical and will be too much of an administrative burden for many practices.”
De Gori said the FPA had been in consultation with Assistant Minister for Financial Services Jane Hume, Treasury and other associations to ensure the legislation reflected the interests of the advice sector, adding: “The most important thing for financial planners is to understand the impact this will have on their business and to start planning how they can efficiently and effectively operate their business in this new legislative environment.
“This legislation will require business practice changes, administration changes, disclosure changes and financial planners need to be thinking about this sooner rather than later.”
