What will the first tranche of QAR mean for advisers?

The first tranche of the Quality of Advice Review is before Parliament. Should advisers be worried?

Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 was entered into Parliament in late March 2024. If enacted, the Bill will enforce the first round of Quality Advice Review (QAR) reforms initiated to ensure the regulatory framework governing financial advice is fit for purpose to deliver “high quality, accessible and affordable financial advice to consumers.”

The legislation covers:

• Deduction of adviser fees from superannuation
• Ongoing fees and timing of consent
• Flexibility for FSG disclosure
• Conflicted remuneration
• New client consent for insurance commissions

Overall, other than the initial compliance cost of managing procedural change, the measures are common sense and will remove some redundant compliance requirements. But as always, the devil is in the detail.

Deduction of adviser fees from superannuation

Clarifies the legal basis for trustees to pay advice fees agreed between a member and their financial adviser from the member’s superannuation account and ensures that these fees are not taxable benefits for members.

The legislation sets out a series of requirements to be met to enable the trustees to be satisfied that the cost of advice can be charged to the member’s interest in the fund:

• The product is personal advice and is wholly or partly about the member’s interest in the fund, that is, the adviser has considered the needs of the individual’s financial objectives.
• The amount charged against the member’s super interest does not exceed the cost of providing financial product advice about the member’s interest in the fund. That is, the advice will need to be specific to the member’s interest in the fund and charged accordingly and reasonably.
• The cost of the advice is charged as per the member’s written request (unless it is an ongoing fee arrangement).
• If it’s an ongoing fee arrangement, the arrangement meets the rules for ongoing fee arrangements (see below) and the request and consent requirements for ongoing fee arrangements have been met; and
• Paperwork…the trustee has the member’s request or consent, or a copy of it.

There are a few issues to be aware of:

• Each of the criteria of the requirements must be met for each individual member and cannot apply collectively to all members of a fund.
• The trustee can refuse the request, even if the requirements have been satisfied, if they think the request does not relate to the member’s beneficial interest in the fund or if charging the cost would be inconsistent with the trustee’s other regulatory obligations.

Applies from…

The amendments apply to costs charged the day after Royal Assent of the legislation regardless of when the arrangement for the provision of advice is entered into. However, where the paperwork is in place immediately prior to the change, then the existing arrangements will remain in place up until the anniversary date (no more than 12 months) or the arrangement is renewed, varied or terminated.

Any issues?

The legislation is designed to ensure that advice fees cannot be loaded up into superannuation unnecessarily – only fees applicable and relevant to an individual’s superannuation can be deducted. We’ll need to see how this one plays out in practice and if the balance between protecting superannuation and the ease of accessing affordable advice, is achieved.

Ongoing fees and timing of consent

In a win for financial advisers, the ongoing fee renewal and consent requirements will be simplified to a standard form and the requirement for fee disclosure statements will be removed. Ongoing fees will still require a client's consent on an annual basis. The consent form must explain the services that will be provided and the fee the financial adviser proposes to charge for the following 12 months. The consent form will also authorise the deduction of an advice fee from their client's financial products.

The legislation includes a provision that the consent form should be prescribed, where the Minister is responsible for approving one or more forms. These are expected to cover:

• Entering into an ongoing fee arrangement;
• Renewing an ongoing fee arrangement;
• Deducting an amount in respect of ongoing fees from an account;
• Arranging to deduct an amount in respect of ongoing fees from an account.

In addition, some flexibility has been created with the timing of the ongoing fee arrangement. Gone is the requirement for consent to the ongoing fee arrangement to be completed within 60 days of the ‘anniversary date’ of when the fee was first entered into. Instead:

• The significance of the ‘anniversary date’ will be replaced with the term ‘reference day’.
• Client consent for an ongoing fee arrangement can be obtained up to 60 days before the reference day and must be obtained on or before 150 days after the reference date. For example, the reference day of a new agreement can be changed to align to a certain day or date such as the start of the month, as long as it is obtained within the timeframe of 60 days prior or on or before 150 days after the previous anniversary/reference date.

This is a welcome change to the current arrangements.

The legislation will also repeal civil penalties for failure to notify any third-party account provider that consent for an account deduction has ceased. While a civil penalty will no longer apply, other regulatory consequences continue to exist.

Applies from…

The amendments apply the day after the legislation receives Royal Assent. Transitional arrangements are in place so that:

• The new rules apply to any new ongoing fee arrangements entered into from the day after Royal Assent
• For any existing ongoing fee arrangements, the transition day is the anniversary date. From this date, the new obligations will apply (including the timing changes).

Any issues?

While welcome, whether this measure simplifies compliance will come down to the management of the standardised form between the Minister and the providers.

Flexibility for FSG disclosure

Currently, advisers must provide a Financial Services Guide (FSG) to retail clients and if there is a material change to the information contained in the FSG, a new or supplementary FSG must be provided.

While the FSG requirements remain in place, a new Division 2A will be inserted in Part 7.7 of the Corporations Act, to provide a new website disclosure option as an alternative to providing an FSG to a retail client. Advisers will have the choice to provide the FSG directly to clients or make the FSG information available on their website as ‘website disclosure information’.

Applies from…

The option will be available the day after Royal Assent of the legislation.

Any issues?

Another welcome move but advisers using the website option will need to ensure that their FSG is accurate and up to date or they will fail their obligations. Don’t forget about it.

Simplifying conflicted remuneration provisions

The current definition of conflicted remuneration will be repealed and replaced with a new definition. Basically, the new definition removes some of the noise on the nature of monetary or non-monetary benefits from clients and enables the exceptions related to superannuation fund trustee fees for personal advice.

Applies from…

Commences the day after Royal Assent of the legislation.

Any issues?

A tidying up that will have limited impact on advisers.

New client consent for insurance commissions

Introduces new consent requirements where an adviser is likely to receive a commission for a life risk insurance, general insurance or consumer credit insurance product. The client’s informed consent must be received prior to the commission becoming payable. If the client does not consent, the adviser can agree to provide the advice for a fee paid by the client, or they can decline to provide the advice. The disclosure includes the rate of the monetary benefit (i.e., as a percentage not a dollar amount) and the frequency.

Applies from…

Applies to benefits given in connection with the issue or sale of general insurance products, life risk insurance products or consumer credit insurance on or after the end of the period of 12 months beginning on the day the Bill receives Royal Assent.

Any issues?

Currently, insurance commission is disclosed in a prescribed form in a Statement of Advice (SOA) and this measure has no impact on that process. As a result, the legislation is premature until we have clarity on the Government’s position regarding SOAs.

If the proposed laws are implemented prior to any amendments to SOA requirements, there is a risk of duplication of disclosure.

Timeframes

The Bill has been referred to the Senate Economics Legislation Committee with their report due 20 June 2024.

Further infromation:

• Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024