Reforms for financial services are on the way to protect consumers, the next tranche of recommendations from the Financial Services and Banking Royal Commission is currently being legislated.
Reforms for financial services industry on the way services industry on the way in an attempt to stamp out the previously common practice of “fee for no service” in which clients with ongoing fee arrangements were charged for services that were not provided. Under the new laws, financial advisers will be required to seek an annual renewal from clients and have them consent in writing before any fees can be deducted.
As a part of the government’s response to the recommendations of the Financial Services and Banking Royal Commission (Hayne Royal Commission), more reforms will be made to the financial services industry in order to improve consumer protections. Perhaps the reform that has received the most attention is the one related to ongoing fee arrangements.
Out of the many harrowing stories to come out of the Hayne Royal Commission, many related to clients of financial advisers being charged for services that were not provided, this was found to be especially prevalent in clients who were provided services under ongoing fee arrangements. This practice was commonly reported in the media as “fee for no service”.
Under the current laws, ongoing fee arrangements only need to be renewed every 2 years, and any ongoing fee arrangements entered into before 1 July 2013 are not required to be renewed. The renewal period could also begin and end on different dates to the previous renewal period depending on when the financial adviser last provided the client with a renewal notice. In addition, there is no requirement to renew or obtain a new consent from the client in relation to the deduction of ongoing fees after the client has given initial consent.
To address “fee for no service”, the Royal Commission made three recommendations including changing to an opt-in arrangement. As a part of its reforms to clean up the financial services industry, the government is currently seeking to legislate these recommendations in which all financial services providers that receive fees under an ongoing fee arrangement will be required to provide clients with a fee disclosure statement during the same period each year which:
- includes the fees that will be charged in the following 12 month period;
- outlines services that the client is entitled to receive in the following 12 month period; and
- seeks an annual renewal from clients for all ongoing fee arrangements.
In addition, financial advisers will be required to obtain written consent before fees under an ongoing fee arrangement can be deducted from a client’s account. This written consent cannot last longer than 150 days after the next “anniversary day” to ensure that consent to the fees are being sought each year. The new laws will encompass all ongoing fee arrangements regardless of when it was entered into.
These reforms for the financial services industry are aimed at providing clients with more frequent opportunities to assess whether the services they are receiving are commensurate with the ongoing fees they are paying, while at the same time providing greater visibility around the nature and amount of fees being deducted automatically from their accounts.
The changes are expected to apply from 1 July 2021, with transitional arrangements applying to some ongoing fee arrangements that are in force immediately before 1 July 2021. The government hopes that these, along with other complementary reforms will instil confidence back in the financial services sector and offer more protection to consumers.
Reforms for financial services industry on the way, want to find out more?
If you would like to keep up-to-date with the latest developments in financial services and reforms stemming from the Hayne Royal Commission, contact us today. If you’re after some simple advice in relation to superannuation and certain investments, you may not need to see a financial planner, we may be able to help.
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