The opt-in provision of the government's planned financial advice reforms needs a safety mechanism to ensure consumers are not inadvertently left without an adviser, the Financial Ombudsman Service (FOS) has said.
In its submission to the Parliamentary Joint Committee (PJC) on Corporations and Financial Services, FOS expressed concern that illness, extended holiday travel or difficulty in understanding long, technical documents could prevent clients from renewing adviser agreements. As a result, they could be penalised by inadvertent termination of the relationship.
"The client would, for example, not be able to recover losses resulting from the fee recipient's failure to provide advice after the termination," FOS said.
"Our focus in this context is retail clients who have investments and need ongoing advice, whose adviser/client relationship terminates under provisions in the bill, not because they have decided to terminate the relationship."
The financial services dispute resolution body said the opt-in measure needed a requirement that clearly stated how failure to renew would affect the client.
If the client failed to sign and return the agreement, the legislation should require advisers to send a follow-up notice confirming termination of the relationship, how the termination affected the client and what clients should do if they wished to seek advice in the future, FOS said.
In a separate submission, dealer group Professional Investment Services (PIS) said it did not support opt-in because a number of other regulatory changes, including best interest duty and removal of conflicted remuneration, would significantly enhance consumer protection.
"Clients already have the capacity to opt out and we do not believe that opt-in benefits the consumer or is necessary, but just adds another layer of bureaucracy to the process and unacceptable level of risk to consumers through loss of advice," PIS group managing director Graeme Evans said.
Meanwhile, the Joint Accounting Bodies (JAB) used its submission to not only support the introduction of a mandatory two-year opt-in process, but said the government should abandon its plan to grandfather the clause.
"We believe this protection mechanism should be afforded to both existing and new clients," JAB, which groups CPA Australia, the Institute of Chartered Accountants in Australia and the Institute of Public Accountants, said.
The Australian Institute of Superannuation Trustees agreed, stating exempting existing clients would only serve to maintain the status quo, rather than mark a great leap forward for the industry.
"Ideally, we would like to see the provisions set for all clients," it said, adding it would support a five-year transition period for existing clients.
The first part of FOFA includes the so-called opt-in arrangement, which would require financial advisers and planners to get clients to sign fresh contracts every two years.
Tranche one of Financial Services and Superannuation Minister Bill Shorten's Future of Financial Advice (FOFA) was referred back to the PJC and the Senate Economics Committee.
