Despite Parliament’s imposition of an opt-in requirement for continuing fee arrangements, the Australian Securities and Investments Commission has suggested that an opt-out arrangement might be acceptable.

This would alleviate the peremptory impact of a failure to opt-in within the allowed 30-day period, for example the termination of their adviser’s entitlement to ongoing fees (and their appointment) 30 days later.

Advisers are rightly concerned that this could put clients who do not opt-in, either inadvertently or for reasons beyond their control, at risk.

For this reason, an opt-out provision makes sense.

An opt-out provision will not be enough on its own. It will need to achieve substantially the same policy outcomes regarding engagement, service delivery and value for money as opt-in.

In essence, it will need to ensure that clients are not paying for services which are not being provided.

It’s not possible to read ASIC’s mind on what would be acceptable, but some or all of following would arguably achieve the policy objective:

  • A formal retainer process, in which the client agrees what the services to be provided by the adviser, how and when they are to be provided, the amount of the fees and how they will be renegotiated;
  • Terms of engagement, which entitle the client to terminate the adviser’s services at any time and provide a simple mechanism for doing so;
  • Regular meaningful engagement with the client – like periodic updates and review meetings, ongoing advice, etc.;
  • Periodic review and written advice on the continued suitability of the current service level for the client, together with a reminder that the client may terminate the services. Sending this with the annual fee disclosure letter would minimise the additional work involved;
  • An automatic termination of the engagement if no services have been provided or no client contact (by telephone or in person) has occurred for more than a specified period, say six months after the last fee disclosure.

Claire Wivell Plater is managing director of The Fold Legal, specialist provider of legal advice on regulatory, commercial and licensing issues to the financial services industry.