Recent developments in the financial advice sector
The Australian financial advice industry has received a lot of attention from the Government and regulators in recent years, especially following the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission).
The Royal Commission revealed that the reforms in regulating financial advice – including the Future of Financial Advice (FOFA), establishment of a Financial Advisers Register and development of professional standards – were not enough to provide consumers with adequate protection and access to affordable financial advice.
In the last couple of years, the shortcomings of past reforms have been addressed through the Better Advice legislation, ASIC’s affordable advice review and other recent developments in the financial advice industry. This blog provides an update on these developments and how your organisation can achieve and maintain compliance.
Better advice legislation
After initially being introduced into Parliament in June 2021, the Financial Sector Reform (Hayne Royal Commission Response – Better Advice) Bill 2021 was passed by the Government in October 2021. The Better Advice legislation implements recommendation 2.10 of the Royal Commission, to strengthen consumer protections and streamline oversight of the financial advice industry.
"Ensuring that Australians can continue to access high quality, professional and affordable financial advice is incredibly important as we emerge from the pandemic and I commend this bill to the Senate." - Financial Services Minister Jane Hume
The legislation enacts the following changes to the financial advice sector:
Removes the Tax Practitioners Board (TPB) as an advice regulator so financial advisers are no longer subject to duplicate disciplinary and registration systems.
Winds up the Financial Adviser Standards and Ethics Authority (FASEA) and transfers its functions to Treasury and ASIC.
Establishes the Financial Services and Credit Panel within ASIC as the single disciplinary body.
The panel – who will hear complaints about adviser compliance – will consist of members of the industry appointed by the relevant Minister and misconduct will be primarily assessed by peer review.
Introduces a new system and fees for the financial adviser exam and registration.
Assigns the responsibility for administering the financial adviser exam to ASIC, using a set framework.
Outlines the registration, education and training requirements for financial advisers providing tax (financial) advice services.
Creates additional penalties and sanctions for financial advisers who have breached their obligations under the Corporations Act.
Prescribes which administrative sanctions made against a financial adviser must be disclosed on the Financial Advisers Register for greater public transparency.
These changes apply from 1 January 2022. However, the Government has confirmed that for advisers who have genuinely attempted the exam twice prior to 1 January 2022, it will extend the cut-off date to 30 September 2022.
Affordable advice review
In November 2020, ASIC released Consultation Paper 332 Promoting access to affordable advice for consumers, seeking input from financial advice industry participants and stakeholders to understand the issues in providing good quality affordable personal advice and how to improve consumer access to such advice.
Following the consultation period, ASIC committed to the following initiatives:
Working with the industry on determining steps to address issues surrounding providing good quality affordable personal advice.
Setting out actions to help the industry provide both good quality limited advice and affordable personal advice.
Sharing industry feedback with the Government where relevant, e.g. feedback on law reform.
Following ASIC’s commitment to help the industry, they have recently issued two Information Sheets to provide guidance on issues which have been front of mind for the industry for many years:
Information Sheet 266 – Records of Advice; and
Information Sheet 267 – Tips for giving limited advice.
Information Sheet 266: FAQ’s Records of Advice
Information Sheet 266: Records of Advice was released on 5 November 2021and answers frequently asked questions about ROAs, including questions about the use, preparation and record-keeping of ROAs. This Information Sheet provides the industry with:
Examples of advice situations where an ROA can be used
Guidance on what information must be included in a ROA for different situations
Guidance on the meaning of ‘significantly different’
Examples of Records of Advice for three different situations
As ROA’s are shorter and less formal, licensees can provide affordable and efficient advice to existing clients to confirm any changes to advice that may have been provided in a previous SOA. This Information Sheet is an excellent resource that outlines ASIC’s guidance in using Records of Advice.
The above guidance adds to ASIC’s Example Record of Advice (ROA): COVID-19 relief measure to help advisers providing advice under the temporary relief set out in ASIC Corporations (COVID-19—Advice-related Relief) Instrument 2020/355. The temporary relief measures are designed to help financial advisers provide consumers with affordable and timely advice during the COVID pandemic, by allowing advisers to provide an ROA – rather than an SOA – to existing clients who require advice due to the adverse impact of the pandemic on their personal circumstances. After industry consultation, ASIC has extended this relief to 15 April 2022 and reintroduced the measure that allows advisers additional time to supply an SOA to their clients after providing time-critical advice.
Information Sheet 267: Tips for giving limited advice
Information Sheet 267: Tips for giving limited advice was released on 1 December 2021to help financial advisers and advice licensees comply with their obligations when providing limited personal advice. This Information Sheet provides the industry with an overview of:
Best interest duty and related obligations when giving limited advice
The safe harbour provisions
ASIC’s tips for giving limited advice relate to some of the steps in safe harbour but as with all types of advice, addresses the need for comprehensive and sound record keeping which includes:
What the client is seeking;
How you have scoped the advice;
What you have discussed with the client;
Why the client is requesting a limited scope of advice;
What the client’s relevant circumstances are;
Why the scope of advice is suitable; and
What not to include in the SOA.
Without evidence of the above records, it will be difficult to demonstrate that one has complied with the obligations.
Other recent developments for financial advice
The Better Advice legislation and affordable advice review are not the only changes making a shift in the financial advice sector. Other developments impacting industry participants include:
Since 1 January 2020, all financial advisers have been required to comply with the Code of Ethics issued by FASEA. Many have argued that the blanket prohibition on any conflict of interest in Standard 3 of the Code is impossible to comply with and conflicts with the law. FASEA has received feedback from stakeholders and since put forward two alternative options to the wording of Standard 3. Consultation on the appropriate language for this standard only recently concluded (1 December), with the outcome not yet known.
As previously mentioned, the Better Advice legislation dissolves FASEA, with its functions to be shared between Treasury and ASIC effective from 1 January 2022.
Financial advice compliance frameworks
To keep on top of the changing regulations and developments in the financial advice sector requires the design and implementation of strong compliance frameworks. Without adequate compliance frameworks, industry participants are exposed to considerable compliance risk – both financial and reputational.
In our previous blog on compliance frameworks, we explored the key elements, options available in designing a framework that is fit-for-purpose, minimum regulatory obligations and using governance, risk and compliance systems to automate and digitise compliance processes.
Focusing on financial advice, the key elements for an effective compliance framework are set out below:
With the raft of changes introduced in the past six months, licensees more than ever must ensure their internal processes, procedures and documentation that support the effective provision of advice are up to date and compliant. There are additional responsibilities and obligations for responsible managers, staff and advisers with new timeframes for reporting. Compliance plans and calendars need to be reviewed and updated and consideration of responsibilities is an important factor. Remember, in the past six months, regulatory changes included:
Assessment of incidents and the new breach reporting obligations
New timeframes and obligations for complaints handling
Anti-hawking provisions
Reference checking protocols
Requirements to notify, investigate and remediate obligations
In addition to reviewing compliance plans and calendars, with ASIC providing guidance on Records of Advice and Limited Advice, there is an opportunity for licensees to review their internal operations and procedures including:
Advice templates
Compliance checklists
Record keeping to support safe harbour obligations
How Hall Advisory can help
Hall Advisory specialises in governance, risk, compliance and strategic advisory services across the financial services sector, including financial advice.
In terms of financial advice compliance frameworks, we can assist you with:
Independent review of the adequacy and effectiveness of your current financial advice compliance framework.
Uplift of your financial advice compliance framework to meet regulatory and business requirements and ensure it is fit for purpose.
Development and implementation of supporting policies, plans, registers and calendars.
Assessment of your organisation’s financial advice compliance culture.
Development and facilitation of compliance training programs for your financial advisers.
Selection and implementation of GRC systems.
To help you ensure your advisers are providing good quality affordable advice to clients, we can also assist with assessing the quality of your advice by:
Conducting file reviews to complement your monitoring and supervision obligations.
Reviewing your procedures, processes, templates used in the delivery of advice to ensure they are fit for purpose and assist your AFSL in complying with the legislative environment.
Providing tailored coaching sessions with staff.
Developing and facilitating workshops to support better practices.
Uplifting operational processes, procedures and templates to meet requirements, appropriate to the size and nature of your business.
Contact us today and let’s start with a confidential, no-obligation conversation about how we can help you comply with financial advice law and regulations.
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