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ASIC delivers certainty on consent and ‘lack of independence’ disclosure

Compliance

The corporate regulator, ASIC, has continued its busy start to the year, releasing three legislative instruments this week stemming from the recommendations from the Hayne Royal Commission.

  • The subject of these latest releases, which will guide ASIC’s assessment of financial service providers, relates to the ‘written consent’ required for advisers to deduct fees from client accounts, and most importantly the specifics around the use of restricted terms including ‘independence’, ‘impartial’ and ‘unbiased’ as outlined under S923A of the Corporations Act.

    ASIC noted on the release of the instruments that it did not have the power to provide exemptions from these changes nor to modify how the requirements are applied, they simply must be taken as is. Specifically “ASIC can only specify requirements for the advice fee consent and the form of the disclosure of lack of independence.”

    Ongoing fee agreements

    ASIC Corporations Instrument 2021-124 covers the Consent to Deductions for Ongoing Fee Arrangements and seems to confirm the requirement for 12-month ongoing service renewal stating the client’s written consent to the deduction of fees must confirm “ the frequency and amount of each ongoing fee the account holder will pay during the upcoming year if the account holder were to renew the existing ongoing fee arrangement, where the upcoming year is a period of 12 months beginning on the next anniversary day for the ongoing fee arrangement”.  Further, it confirms that the consent must cease to have effect up to 150 days after the anniversary day of the ongoing fee arrangement.

    Disclosure of lack of independence

    The most powerful of the change is likely ASIC Corporations Instrument 2021-125 – Disclosure of Lack of Independence, which requires a statement to be included on the “first substantive page of the financial services guide (FSG.)” The instrument is highly descriptive, requiring the words “not independent” or “lack of independence” or another phrase to be included “within a box under a bold heading,” in a font size at least the same as the remainder of the FSG, and that it “must not appear in a footnote.” This will apply from 1 July 2021 for those who satisfy any of the following:

    • You are receiving commissions on the sale of life risk insurance products that are not rebated in full to clients: s923A(2)(a)(i).
    • You are wholly owned by an issuer of the financial products that you give personal advice on to retail clients: s923(2)(e).
    • Your AFS licensee, or another authorised representative that is authorised by your AFS licensee, receives commissions, volume-based payments or other gifts or benefits: s923A(2)(a)(i)–(iii) and s923A(2)(b).

    Consent to pass on costs

    Under ASIC Superannuation Instrument 2021/126 – Consent to Pass on Costs of Providing Advice, which will apply from 1 July 2021, in order for the trustee of a regulated super fund to pass the cost of advice onto a member, it must receive written consent that contains a number of facts. These include an explanation as to why consent is being sought, how long the consent will last, information about the services the member will be entitled to receive, and a statement confirming if the cost is passed on by deducting from the member’s superannuation interest,

    Most importantly, the statement must confirm that the member can withdraw their consent at any time. This clearly increases the hurdle of advice fee deduction from a range of superannuation accounts, ultimately requiring advisers to justify each individual fee agreement with various super funds.




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