The expensive DBFO fee disclosure glitch | Australian Markets

While financial planners await the following tranche of the Delivering Better Financial Outcomes (DBFO) laws, many have discovered themselves having to deal with expensive glitches within the first tranche notably round fee consent.

What is more, it seems that these glitches are past regulatory fixes and may solely be addressed by the Government introducing particular legislative amendments.

The consequence has been an increase within the regulatory burden for financial advisers, together with with respect to breach reporting obligations.

The glitches have been recognized by the Financial Advice Association of Australia (FAAA) with ongoing fee consents sitting on the coronary heart of the problem in circumstances the place the intent of the primary tranche of DBFO with respect to simplifying Fee Disclosure Statement (FDS) obligations has hit a quantity of real-time hurdles.

“The goal was to simplify this regime and streamline it,” the FAAA instructed 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 stated.

Discussing the problems with Financial Newswire, FAAA General Manager, Policy & Advocacy, Phil Anderson stated he believed the issues had originated from the complexity concerned in making an attempt to translate the pre-existing preparations and ASIC rulings.

He stated it was solely after the introduction of the new legislative regime that the issues have been totally recognised together with the fact that legislative amendments are required.

Andeson has instructed members that the core of the issue is that Section 962T of the Act requires that for an Ongoing Fee Arrangement, the place a fee is paid from a product, that the account quantity must be included on the consumer fee consent type. In sure circumstances, reminiscent of a new account, this account quantity will not be obtainable from the product supplier on the time that the fee consent type is accomplished and signed by the consumer.

“The core issue is whether the fact that the account number is missing will invalidate the form,” his evaluation stated.

He stated the FAAA, together with others, reached out to Treasury from mid January 2025 to acquire steerage on this subject and searching for a resolution to keep away from a potential downside.

“Treasury in early February responded to counsel that it was the coverage intent to incorporate the account quantity, that resolving this subject would require adjustments to the first law and that as an alternative we should always search regulatory steerage 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 stated.

“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 stated that as a consequence of what the FAAA believes is a technical flaw within the DBFO laws, a massive quantity of advisers are doing further administrative work to handle the truth that consent types have been submitted with out account numbers.

“Licensees are doing a substantial quantity of breach studies regarding this matter, at great price. Another massive issue right here is that even though this downside was recognized from across the time when the duty commenced, there’s no flexibility on this half of the Corporations Act for both the Minister or ASIC to repair it.

“This outcome should have been avoidable,” Anderson instructed members.