First tranche of legislation adopting Quality of Advice Review recommendations open for consultation
NIBA has welcomed the release of the first tranche of draft legislation as part of the government’s response to the recommendations of the Quality of Advice Review.
“We welcome the release of the draft legislation and look forward to working with government on these important reforms to remove regulatory red-tape and improve the affordability and accessibility of general risk advice” said NIBA CEO, Philip Kewin.
As announced by the Federal Government back in June in its ‘Delivering better financial outcomes roadmap’, the implementation of these reforms will be a staged process and will align with three different streams.
The legislation released this week addresses many of the recommendations scheduled for phase 1 including;
- Introducing client consent requirements for life insurance, general insurance and consumer credit insurance commissions; and
- Amending FSG requirements to allow providers greater flexibility in the way they provide disclosure documents.
Reforms that were originally slated for release in Phase 1 including the substitution of Statements of Advice with a fit-for-purpose record of advice and the elimination of the Safe Harbour Steps have been postponed until later next year.
Flexibility for Financial Services Guide (FSG) requirements
The draft legislation proposes amending the Corporations Act to allow providers of personal advice to either continue to give their clients a FSG or instead make the FSG information publicly available on their website.
A provider can choose whether to continue providing a FSG in accordance with the current law or alternatively provide the FSG on their website. To rely on the alternative option, where a provider does not give the client a FSG and instead includes the information on its website, certain requirements must be met:
- The financial service provided to the client is personal advice; and
- At the time the advice is provided, the client has not requested a copy of the FSG and the information that would have been in the FSG is available on the provider’s website; and
- At the time the advice is provided, each web page displaying the information is readily accessible, up to date and records the date the page was prepared or last updated.
New consent requirements for general insurance commissions
The draft legislation introduces new client consent requirements for general insurance, life insurance and consumer credit insurance products. The requirement stipulates that advisers who provide personal advice to a retail client about a life risk insurance, general insurance or consumer credit insurance product must obtain the client’s informed consent before accepting a monetary benefit such as a commission.
The new requirement also stipulates that advisers must inform the client of any services that they will provide the client for the relevant product, mirroring the terms of engagement obligations under the current Insurance Brokers Code of Practice (Code).
Unlike the Code, which requires Subscribers to disclose the dollar amount of commission, the proposed legislation allows the disclosure to be limited to a percentage range i.e. 10-20% of the premium. In keeping with the Code's commitment to set standards above those required by law, Subscribers will still be required to disclose the dollar amount of commission to retail clients.
The legislation stipulates that a written record of the client's consent must be retained, however, clients are not required to provide consent in writing. This allows brokers greater flexibility when obtaining consent from clients.
In response to concerns raised by NIBA that the commission consent obligations could result in clients being left uninsured if brokers were required to wait for the client to provide consent prior to renewing a policy, the draft legislation does not require brokers to obtain the client's consent at each renewal provided the broker informed the client they would receive commission on each occasion that the policy is renewed prior to obtaining the client's original consent.
It is important to note that this is not the final version of legislation that will go before parliament sometime next year. NIBA will be providing feedback on the draft legislation, prior to the consultation closing in early December.
Reforms relating to other recommendations affecting brokers such as the expansion of the personal advice definition and the introduction of a 'good advice’ duty to replace the existing 'best interests’ duty are expected to be released sometime next year.