The expensive DBFO fee disclosure glitch
While financial planners await the next tranche of the Delivering Better Financial Outcomes (DBFO) legislation, many have found themselves having to deal with expensive glitches in the first tranche particularly around fee consent.
What is more, it appears that those glitches are beyond regulatory fixes and can only be addressed by the Government introducing specific legislative amendments.
The result has been an increase in the regulatory burden for financial advisers, including with respect to breach reporting obligations.
The glitches have been identified by the Financial Advice Association of Australia (FAAA) with ongoing fee consents sitting at the heart of the issue in circumstances where the intent of the first tranche of DBFO with respect to simplifying Fee Disclosure Statement (FDS) obligations has hit a number of real-time hurdles.
“The goal was to simplify this regime and streamline it,” the FAAA told its members. “In practice, that has not been achieved and we now have duplication of forms and confusion.”
“The legislative complications, such as the need to include an account number on a fee consent form for enabling the deduction of a fee from a product, even for new accounts, is a flaw in the law that has caused a significant regulatory burden for all parties,” it said.
Discussing the issues with Financial Newswire, FAAA General Manager, Policy & Advocacy, Phil Anderson said he believed the problems had originated from the complexity involved in attempting to translate the pre-existing arrangements and ASIC rulings.
He said it was only after the introduction of the new legislative regime that the problems were fully recognised along with the reality that legislative amendments are required.
Andeson has told members that the core of the problem is that Section 962T of the Act requires that for an Ongoing Fee Arrangement, where a fee is paid from a product, that the account number needs to be included on the client fee consent form. In certain cases, such as a new account, this account number may not be available from the product provider at the time that the fee consent form is completed and signed by the client.
“The core issue is whether the fact that the account number is missing will invalidate the form,” his assessment said.
He said the FAAA, along with others, reached out to Treasury from mid January 2025 to obtain guidance on this issue and seeking a solution to avoid a potential problem.
“Treasury in early February responded to suggest that it was the policy intent to include the account number, that resolving this issue would require changes to the primary law and that instead we should seek regulatory guidance from ASIC.
“We quickly approached ASIC to discuss potential solutions and clarification on the interpretation of the law. We put forward a couple of options and had a follow-up meeting with ASIC in mid April. They confirmed that they did not consider alternative options existed within the primary legislation and were definitive in terms of the need for the account number to be on the consent form when it is signed by the client,” he said.
“We highlighted the potential practical consequences of this interpretation, including the fact that this would potentially lead to the automatic termination of impacted Ongoing Fee Arrangements where the account number was not available at the time of the client giving their consent.”
Anderson said that as a result of what the FAAA believes is a technical flaw in the DBFO legislation, a large number of advisers are doing extra administrative work to address the fact that consent forms have been submitted without account numbers.
“Licensees are doing a substantial number of breach reports relating to this matter, at great cost. Another big factor here is that despite the fact that this problem was known from around the time when the obligation commenced, there is no flexibility in this part of the Corporations Act for either the Minister or ASIC to fix it.
“This outcome should have been avoidable,” Anderson told members.
ASIC could have taken a no action position for new accounts, honouring the clear choice consumers have made to pay for financial advice. Instead they did what they always do – cause harm and disruption to financial advisers without any consumer benefit.
100%.
Canberra stuffs up. Advisers pay for it.
ASIC’s position is ridiculous and in my opinion says much about their culture.
Advisers paying for stuff ups isn’t new. Advisers are rolling in money.
It’s no soo complicated even the government, ASIC and treasury can’t figure it out.
We miss an FSG…..BREACH.
They can’t do their job properly and funded by the taxpayer. Suck it up planners and fund it yourselves.
Remove ASIC, gut the corps act of Advice legislation and institute a professional standards board.
It’s simple, effective, will protect consumers and will be workable. Only problem is 1000 or so bureaucrats across several ministries and regulators will be redundant. Boohoo. At only 100k per year average (will be more) that’s $100m. CSLR now over funded.
Red Tape Canberra maniac morons strike yet again. These moronic clowns including Hot Mess Jones have delivered in last 3 years, yep MORE RED TAPE!!!
– Triple ASIC Levy
– CSLR of what $$Billions onto Advisers
– Fee Consent systems to be totally overhauled from Admin platforms and AFSLs that still need 2 forms to say same thing. Mass costs for nothing achieved.
Now we find these new OFAs have to be redone for many.
Great job Jones and Canberra.
Now these Canberra muppets want an expensive talk fest to work out why Productivity stinks.
Simple, IT’S FREAKING CANBERRA POLLIES & BUREAUCRATS!!!!!!
That’s why there is no productivity.
RED TAPE MANIAC MORONS.
Also add in new AFSL / Adviser required Life Insurance Commissions consent.
Just because there wasn’t enough red tape already and Advised Life Insurance was going so well post LIF & FARSEA let’s load up more road blocks for Advisers.
Surely no one is surprised this process is a cluster …., all changes that “make the provision of advice easier” end up the same and make it harder.
Utterly absurd.
What happened to OFA’s falling by the wayside ? (You know – the recommendations contained in the Levy report about 15 years ago ?)
The FAAA’s mistake was to go to Treasury and ASIC. They should have gone to the product product providers and pointed out the flawed legislation so they could immediately start listing account numbers on application/consent forms.
Expecting help from Treasury and ASIC shows how stupid and naive the FAAA are. Where have they been for the last 20 years? Have they learned nothing?
Look at their record. If Chalmers and Albanese genuinely want to improve productivity in this country (as they are now saying), the solution is right under their nose.
At the risk of sounding paranoid, but why do so many “mistakes” consistently fall against advisers and the profession?
This most recent “error” requiring account numbers that aren’t yet available could have been easily dealt with by ASIC taking a no-action position. Similarly, the earlier drafting issues that would have meant every SoA needed trustee review just to approve fees from super – another “mistake” that disadvantaged advisers.
If you take the meta view of financial services and super specifically, there are two clear camps: the “non-profit” industry super funds who want to get back into advice via the NCA backdoor, and the for-profit sector that includes retail funds and thousands of small advice businesses.
When you view the ecosystem through this non-profit vs for-profit divide, and then examine the pattern of errors, mistakes and legislative pushes, they all seem to consistently favour the non-profit side of the fence. Industry funds seeking carve-outs from education standards while independent advisers drown in compliance. ASIC finds flexibility for large institutions but takes hard-line positions on technical breaches by advisers.
You can only rely on coincidence as an explanatory model for so long. The pattern suggests an ideological hand at play – whether conscious or unconscious – that views independent financial advice as something to be contained rather than enabled.
Or am I just being paranoid? When every “simplification” adds complexity and every “mistake” costs advisers time and money, it starts to look less like incompetence and more like design.
This is exhausting. Straight out of the Department that calls Degree Educated Advisers relevant providers and calls backpackers Qualified Advisers. Not to mention recommends that think tank that required Advisers to be registered, authorised and licenced, requiring ASIC to set up three new websites and charge Advisers that didn’t tick a box $30,000.
Those fines were appalling. They speak volumes about the adviser smashing attitude (in my opinion) that ASIC represents.
Where was the client detriment? Where was the intent? These were simple administrative errors. Those fines are insane relative to the risk to the public.
It shouldn’t come as any surprise that advisers feel they are operating on a two tiered playing field.