The reluctant reformer
The latest piece of Hayne reform legislation was passed in the Senate yesterday, introducing changes to ongoing fee arrangements, an obligation to disclose a lack of independence and restrictions on deducting fees from superannuation accounts.
All three reforms are based on recommendations of the Hayne royal commission.
Under the new fee arrangements, financial services providers that receive fees under an ongoing arrangement must give their clients a single document each year outlining the fees that will be charged and the services the client will receive in the following 12 months.
The financial services provider must receive written consent before fees under an ongoing arrangement can be deducted from the client’s account.
If the client notifies the financial services provider that they do not wish to renew the fee arrangement, then the arrangement terminates, with no further advice being provided and no further fees charged.
If the client does not notify the financial services provider of their wishes, the fee arrangement will terminate.
Under the new disclosure rule, a financial services licensee or its authorised representative must give a retail client a written statement disclosing their lack of independence, as defined in the Corporations Act.
A “independent” financial services provider does not receive a commission (other than one that is rebated in full), does not receive remuneration based on the volume of business placed with the issuer of the product and does not receive other gifts or benefits that may reasonably be expected to influence the provider.
In addition, an “independent” provider is not directly or indirectly restricted in relation to the financial products in respect of which they provide financial services.
In relation to superannuation, the new law amends the Superannuation Industry Supervision Act to prohibit the charging of entry and exit fees, applies a fee cap on low balance accounts and prohibits the cost of advice provided to employers being borne by members.
The new law also restricts the fees that can be charged to a MySuper account.
The new rules take effect on July 1 this year.