Annual Opt-In Legislation: A Watershed Moment for Financial Advice

The financial advice industry faces a transformative shift with the introduction of new legislation requiring annual ongoing fee renewals and explicit disclosure of non-independence. According to Encore Advisory Group CEO Tom Reddacliff, these changes mark “a watershed moment for financial advice,” with far-reaching implications for practice valuations and client relationships.

Impact on Practice Values
The transition from biennial to annual opt-in arrangements could significantly affect practice valuations, which are already under pressure from other regulatory changes. “Practice values will go much lower for revenue where you can’t demonstrate probability the client will opt in,” Reddacliff explains. “The vast chasm in revenue valuations will open up even more.”

Emphasis on Active Client Relationships
The new legislation places greater emphasis on client engagement and value demonstration. Reddacliff highlights that advisers will need to maintain a more “open and active” relationship with their clients. This aligns with Commissioner Hayne’s vision of ensuring clients make informed assessments about the value of their advice relationships.

Key Changes and Timeline
The legislation introduces several significant requirements:

• Annual written disclosure of past and future fees

• Written consent for fee deductions from client accounts

• Five-year record-keeping obligations

• Explicit disclosure of “lack of independence” for advisers accepting insurance commissions

Business Model Implications
The changes necessitate substantial adjustments to business practices, including:

• Updated compliance systems and documentation

• Restructured client meeting schedules

• Enhanced engagement strategies

• Revised fee disclosure processes

Looking Forward
These regulatory changes signal a new era in financial advice, where transparency and active client engagement become increasingly central to successful practice management. For advice businesses, the focus must shift to demonstrating clear value propositions and maintaining strong client relationships to ensure sustainable practice valuations.

The introduction of these measures represents not just a compliance challenge, but an opportunity to reshape client relationships and business models for greater transparency and engagement.

This article draws insights from “‘Watershed moment’: Annual opt-in, independence disclosure bills released,” which appeared in Professional Planner, February 2020.

Read the full article: ‘Watershed moment’: Annual opt-in, independence disclosure bills released
(https://www.professionalplanner.com.au/2020/02/watershed-moment-annual-opt-in-independence-disclosure-bills-released/)