Thank you for the opportunity to comment on the DRAFT letter by Paul Melling Retirement Planning (PMRP) to Minister Jones.
For my part, as an active advice practitioner, the case made by PMRP is logical, based on sound practicalities in operating a personal advice business, offers a solution for the Minister to consider, contains arguments that are not detrimental to consumers and demonstrates a professional approach to providing quality and affordable financial advice.
As PMRP may ultimately make formal submissions to the Minister and Treasury, it is worth reflecting on the legislative history of, more specifically the ‘Annual Opt-In’ requirement, together with other annual statutory requirements imposed on the provision of personal financial advice, such as Annual Fee Consent and Annual Fee Disclosure.
Background
The Corporations Amendment (Future of Financial Advice) Act 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (The FOFA Acts) amended the Corporations Act 2001 to give effect to FOFA.
The requirement for a bi-annual Opt-In featured as one of five major FOFA reforms. The legislation provided the effective date for the requirement of an annual Opt-In by a consumer was from 1 July 2013 and only applied to new clients being so advised from that date.
This changed with the implementation of all 76 recommendations by the Hayne Royal Commission, after its release to Treasurer Frydenberg in February 2019. The Banking Royal Commission report received bipartisan support and the then government committed itself to implementing all of the recommendations. For the purposes of this commentary, Recommendation 2.1, informing of the now annual requirement for Opt-In and Fee Consent was given legislative effect by the Financial Sector Reform (Hayne Royal Commission Response No.2) Act 2021. The implementation of this Act meant that all clients were now subject to the Annual Opt-In requirements, from 1 July 2021, irrespective as to their commencement date as a client. Similarly, from that date, all clients were subjected to the Annual Fee Consent regime.
QAR
This review has been contentious. The former government undertook the review as a function of Hayne Royal Commission Recommendations, 2.3, 2.5 and 2.6. A Proposals Paper was released on 29 August 2022 to which the AIOFP responded on behalf of its members and is available on its website.
The Final Report was released on 16 December 2022. Chapter 8 of the Final Report, at 8.2.6, the Reviewer comments, “There is no reason to think that [annual] Fee Disclosure Statements add any value to an adviser’s clients”. Whilst no specific mention is made of the removal the Annual Opt-In requirement or Annual Fee Consents, the same logic and argument as expressed by the Reviewer must also apply.
To the contrary, the Reviewer asserts that such annual consents are “not too onerous” ( in the Proposals Paper) and in the Final Report, “continues to be important” (Recommendation 8.2.5).
Submission
The above discourse attempts to add to the DRAFT by PMRP. From previous interactions with the Minister’s office and that of Treasury, it is suggested that the term ‘exemption’ be replaced with the concept of ‘policy change’ or ‘policy adjustment’.
Governments and their administrators have found it ‘difficult’ to deal with ‘exemptions’ but are more amenable to changes in the mechanisms that adjust policy settings. Bureaucrats see this as more than semantics. The proposals by PMRP have significant merit in so far as it seeks to maintain consumer protections whilst simultaneously being able to offer quality and affordable advice. Industry feedback has reflected the administrative burdens placed on financial planning businesses which, such burdens, as admitted by the QAR, have no client benefit. To the contrary, the evidence is that costs have dramatically escalated.
The proposals by PMRP also reflect the fact that financial advice has become a profession. The QAR states clearly that in 2018, 28,000 advisers were listed on the FAR, and records at 16 December 2022 that number had reduced to approximately 15,000. The QAR highlights the steep decline in adviser numbers servicing a clientele of potentially 5 million persons in need of advice.
By implication, the remaining advisers must be of a professional standing and quality to service such clients. It was notable that during the submissions made to government in 2010 in formulating FOFA, both ASIC and Treasury submitted of the advice industry, “you want to have advisers using professional judgement as other professionals do”.
The PMRP proposal attempts to properly encourage the Minister to implement policy changes to the benefit of consumers by addressing the administrative burdens un-necessarily imposed on what has now become a profession. The optimum outcome would be for the Minister to repeal these onerous compliance obligations.
I would be happy to discuss further at your discretion.
Lionel Rodrigues, MFinPlan, LLM.