Overview

Treasury has released a draft Bill – [exposure draft] Treasury Laws Amendment (2024 Measures No. 1) Bill 2024: Quality of Advice Tranche 1 – which is planned to implement the 'first tranche' of a broader legislative package of reforms – the Delivering Better Financial Advice Outcomes package – in response to the following 11 Quality of Advice Review recommendations: 7, 8, 10, 13.1, 13.2, 13.3, 13.4, 13.5, 13.7, 13.8 and 13.9.

Broadly, the proposed changes in the draft Bill are aimed at increasing the 'accessibility and affordability of personal financial advice by removing regulatory red tape for financial advisers'.

What's in the draft Bill?

Clarification of when fees for individual advice can be deducted from a members' superannuation account

Recommendation 7 recommended that:

'Superannuation trustees should be able to pay a fee from a member’s superannuation account to an adviser for personal advice provided to the member about the member’s interest in the fund on the direction of the member.

The objective of this recommendation is to provide superannuation fund trustees with more certainty about paying advice fees agreed between a member and their financial adviser from the member’s superannuation account and ensure that adviser fees are not paid in breach of the SIS Act and are not taxable benefits for members'.

The changes included in Part 1 of Schedule 1 would implement the government's response to this recommendation by:

• amending section 99FA of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) to 'clarify the legal basis of existing practices in which superannuation trustees pay advice fees from a member’s superannuation account at the request of the member'; and
• amending the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) to 'provide legal certainty that payments of certain personal advice fees by a superannuation trustee from the member’s interest in the fund are deductible from the superannuation fund’s assessable income (to the extent they are not incurred in gaining or producing the fund’s exempt or non-assessable non-exempt income), and are not a superannuation benefit for the relevant members'.

Proposed timing: It's proposed that:

• The changes to the SIS Act would apply to costs charged six months after 'the day after Royal Assent', the 'start day'. However, an arrangement entered into before the 'start date', in accordance with the consent requirements of old section 99FA, could continue to rely on that consent 'until the end of the period 12 months after the start day' (unless the arrangement is varied or renewed within the 12 month transition period at which point, the replacement arrangement would need to comply with the requirements of the new s99FA).
• The amendments to the ITAA 1997 would commence from the first 1 January, 1 April, 1 July or 1 October to occur after Assent is given. The changes would apply, and the deduction created by them would be available, in relation to the 2019 20 income year and later income years.

Proposed introduction of a new standard consent requirement for ongoing fee arrangements

Recommendation 8 recommended that:

'The current provisions which require a provider of advice to give a fee disclosure statement to the client, to obtain the client's agreement to renew an ongoing fee arrangement and the client's consent to deduct advice fees should be replaced. Providers should still be required to obtain their client's consent on an annual basis to renew an ongoing fee arrangement, but they should be able to do so using a single "consent form".'

The proposed changes in Schedule 1, Part 2 of the draft Bill would implement the government's response to this recommendation by amending the Corporations Act 2001 (Cth) (Corporations Act) to introduce 'a consolidated and streamlined consent process for when a client enters or renews an ongoing fee arrangement and authorises ongoing advice fees to be deducted from a financial product'. This would entail consolidating ongoing fee consent requirements into a single 'standard form' and repealing the existing requirement for advisers to provide a fee disclosure statement to their clients as part of an ongoing fee arrangement.

Proposed timing: It's proposed there would be a six month transition period. That is, the changes are proposed to apply to new ongoing fee arrangements entered into on or after six months after the Bill receives royal Assent.

For ongoing fee arrangements in force immediately before the amendments made by Part 2 of Schedule 1 apply, the amendments will apply to the arrangement on and after the anniversary of the day on which the ongoing fee arrangement was entered into.

Example 1.1 in the draft explanatory memorandum is a table outlining the proposed operation of the application and transitional provisions on the basis the Bill receives royal assent on 1 July 2024.

Introduce 'flexibility' in how financial service guide (FSG) requirements can be met

Recommendation 10 recommended that:

'Providers of personal advice should either continue to give their clients a FSG or make information publicly available on their website about the remuneration and any other benefits the provider receives (if any) in connection with the financial services they provide and their internal and external dispute resolution procedures (and how to access them)'.

The changes in Schedule 1, Part 3 of the draft Bill would implement the government's response to this recommendation by amending the Corporations Act to give providers of personal advice the option to either continue providing FSG information to their clients in accordance with existing requirements, or to make this information publicly available on their website.

Proposed timing: It's proposed that these changes would commence the day after the Bill receives Assent

Simplify, replace or remove certain exemptions to the ban on conflicted remuneration

Recommendation 13.1 recommended that:

'the conflicted remuneration provisions in the Corporations Act [should be amended] to explicitly provide that both monetary and non-monetary benefits given by a client to an AFS licensee or a representative of a licensee are not conflicted remuneration'.

Recommendation 13.3 recommended that (assuming Recommendation 13.1 is accepted/implemented) the repeal of the following exceptions to the conflicted remuneration provisions:

• 'section 963B(1)(d)(i) of the Corporations Act – monetary benefits given by the client for the issue or sale of a financial product;
• section 963C(1)(e)(i) of the Corporations Act – non-monetary benefits given by the client for the issue or sale of a financial product; and
• regulation 7.7A.12E of the Corporations Regulations – monetary benefits given to the provider by a retail client in relation to the provider dealing in a financial product on behalf of the client'

The changes included in Schedule 1 Part 4 of the draft Bill would implement the government's response to recommendations 13.1 and 13.3 by amending the Corporations Act to clarify that monetary and non-monetary benefits given by a retail client are not conflicted remuneration and removing the associated exceptions to the ban on conflicted remuneration.

Recommendation 13.2 recommended that:

'the exception in section 963B(1)(d)(ii) and 963C(1)(e)(ii) of the Corporations Act [should be removed and replaced] with a specific exception that permits a superannuation fund trustee to pay an AFS licensee or its representative a fee for personal advice where the client directs the trustee to pay the advice fee from their superannuation account'.

The changes included in Schedule 1 Part 4 of the draft Bill would implement the government's response to recommendation 13.2 by amending the Corporations Act to provide that it is not conflicted remuneration for a superannuation trustee to pay an Australian Financial Services (AFS) licensee or its representative a fee for personal product advice that relates to a member’s interest in the fund.

Recommendation 13.4 recommended the removal of:

'the exception in paragraph 963B(1)(c) of the Corporations Act, which provides for monetary benefits given for the issue or sale of a financial product where the AFS licensee or representative has not given financial product advice about the product (or class of product) for at least 12 months prior to the date the benefit is given'.

The changes included in Schedule 1 Part 4 of the draft Bill would implement the government's response to recommendation 13.4 by amending the Corporations Act to remove the conflicted remuneration exception for monetary benefits given for the issue or sale of a financial product where financial product advice about the product has not been provided in the previous 12 months.

Recommendation 13.5 recommended the removal of:

'the exceptions in section 963D of the Corporations Act and regulation 7.7A.12H of the Corporations Regulations for benefits given to an agent or employee of an Australian authorised deposit-taking institution for financial product advice about basic banking products, general insurance products or consumer credit insurance'.

The changes included in Schedule 1 Part 4 of the draft Bill would implement the government's response to recommendation 13.5 by amending the Corporations Act to remove the exceptions to conflicted remuneration for agents or employees of Australian Authorised Deposit-Taking Institutions (ADIs).

Proposed timing: It's proposed that these changes would commence 'immediately after the day after Royal Assent' ie immediately after the commencement of the proposed changes included in Part 3, Schedule 1 to the Bill.

Preserve certain exemptions to the ban on life, general and consumer credit insurance commissions and standardise consumer consent requirements

Recommendation 13.7, 13.8 and 13.9 recommended that the exceptions to the ban on conflicted remuneration for 'benefits given in connection with the issue or sale' of a life risk insurance product (13.7), general insurance product (13.8) and consumer credit product (13.9) should be retained, provided that the client gives their informed consent before the commission is accepted.

The changes in Part 5 of Schedule 1 to the Bill would implement the government's response to recommendations 13.7, 13.8 and 13.9 by amending the Corporations Act to require that a person who provides personal advice to a retail client about a life risk insurance product, general insurance product or consumer credit insurance and receives a commission in connection with the issue or sale of that product must obtain the client’s informed consent before accepting the commission.

Proposed timing: It's proposed that these changes would apply to benefits given for the issue or sale of general insurance products, life risk insurance products or consumer credit insurance three months after Assent is given.

It's proposed that the amendments would not apply to:

'benefits given in connection with the issue or sale of a general insurance product if the product is a renewal of a general insurance product, and that general insurance product was sold before the period of 3 months beginning on the day this Act receives the Royal Assent'.

The reason given for this is that

'it is common for providers to renew a client’s cover on a yearly basis without necessarily meeting with the client before doing so. This reduces the risk that a client could be left uninsured if the provider was in fact required to wait for that consent from the client prior upon the application of the amendments'.

The Draft Bill does not address 'Safe Harbour' or SOAs

The government's response to the Quality of Advice Review (read: Government response to the Quality of Advice Review) flagged that 'Stream one' or 'tranche one' of legislative reforms would include:

• The removal of the 'safe harbour steps' from the Best Interest Duty 'with consultation [undertaken] to determine implementation details and the implications of adopting the remaining parts of Recommendation 5' (ie the replacement of the 'best interests duty' with a new statutory best interests duty which would only apply to financial advisers)
• The replacement of 'Statements of Advice' (SOAs) with 'an advice record that is more fit-for-purpose, with consultation to determine the final design of the replacement' (in line with the government's response to Recommendation 9).
• The introduction of standardised consumer consent requirements will be introduced to classify a consumer as a wholesale or sophisticated client (Recommendation 11).

However, the draft Bill does not address these issues.

The government has flagged its intention to 'announce its final position on the "outstanding recommendations" of the Quality of Advice Review (which presumably includes the recommendations flagged above) 'before the end of the year, with further legislation to be released in 2024'.

In a statement, the Financial Advice Association of Australia (FAAA) expressed concern that these changes have not been included in the draft Bill commenting that:

'These are important elements in cutting unnecessary red tape and have the potential to meaningfully reduce the cost of providing advice. We will be seeking further clarification from the Government on the timeframe for these measures'.

Next steps

The due date for submissions on the draft Bill is 6 December 2023.

[Source: Treasury Consultation: Delivering Better Financial Outcomes – reducing red tape and other measures 14 November 2023 - 06 December 2023]