Advisers who already have ongoing fee arrangements in place may need to start sending fee disclosure statements from the beginning of the 2013/2014 financial year.
This is the view of Claire Wivell Plater, managing director of The Fold Legal, who adds that advisers will not only have to have fee disclosure statements that set out the fees they received in the last 12 months, they will also need to show which of the services they agreed to provide to the client were actually provided.
An engagement letter that clearly lists their services will make this relatively simple and the list can be replicated in the fee disclosure statement with a tick or a cross to show whether or not the service was provided.
“Advisers who use standard service packages that cater for clients’ needs and budgets will be able to simplify this process even further,” said Wivell Plater.
Currently many advisers incorporate the process into the Statements of Advice (SoA).
“It’s not a great approach because as well as cluttering up the SoA, disclosing fees at this stage of the process is, in many cases, too late,” she said. “For advisers to comply with the best interests duty, the client needs to understand and agree to any limitations on the advice in advance.”
But there is an even more compelling reason to put fee disclosure statements into client engagement letters.
“After FoFA, the client will be responsible for paying the fees,” said Wivell Plater. “Even if they’ve provided a direct debit authority, they can revoke it at any time. An effective engagement letter will give advisers a contractual right to recover their fees.”
Once the new obligations become a reality, businesses using old methods of client engagement could potentially struggle.
“We believe a new-broom-sweeps-clean approach to client engagement is probably best,” said Wivell Plater.
