Two weeks out from its July 1 implementation date, the corporate regulator has published a 6,000 word guide on new ongoing fee arrangements, fee disclosure statements and ongoing fee consent requirements for financial advisers.

The guidance around ongoing fee arrangement (OFA) obligations details how advisers will be required to conduct ongoing fee arrangements as per recommendations made in the Hayne royal commission final report, which gained royal ascent in early March and was quickly translated into legislative instruments.

The guidance itself contains little new information, but does give a clearer view on ASIC’s own interpretation of the new regulation.

OFA all the way

The regulatory parameters for ongoing fee arrangements remain as previously indicated, but ASIC has added an acknowledgement of fixed-term agreements of less than 12 months, noting that it will assess the nature of the arrangement based on the contract’s term, the fee charged and the “understanding” between the client and the adviser.

“We recognise that licensees and advisers frequently enter into fixed-term agreements for charging a client fees for a period of 12 months or less,” ASIC noted. “There are a range of factors that ASIC will consider in determining whether or not such an agreement is an ongoing fee arrangement.”

The new OFA obligations commence 1 July 2021 as previously scheduled, with advisers getting a 12-month transition period to provide the agreement in its new form. The day a new OFA is signed will become the client’s “anniversary day”, with multiple anniversary days to be managed if more than one OFA is signed.

ASIC has clarified that it will accept electronic OFA renewals within the 120-day post-anniversary date renewal window, which includes SMS confirmations and webpage ‘checkbox’ functions.

Records of these electronic documents must be kept for at least five years, ASIC warned. In the case of an SMS renewal, the regulator advises, this would include “…an image of the SMS, the sender’s name and date of receipt”.

Consumer-friendly FDS

As indicated in the legislation, fee disclosure statements will need to go out within 60 days of the clients’ anniversary date.

As the FDS is to be given out on the clients’ anniversary date, ASIC has made it clear that no FDS will be required when the client first enters an ongoing fee arrangement “but for all subsequent years after that”.

The information required in the FDS – including the previous year’s fee amounts, estimates for the future year’s fee amounts, together with past and future services provided – matches the legislation.

ASIC has provided some guidance on how the FDS should be present to the client, however.

“The FDS should be consumer-friendly, concise and easy to read,” the guidance stated. “The law does not prescribe the level of detail required in an FDS. However, you must clearly distinguish between the services the client was entitled to receive and the services the client actually received in the previous year.”

Extra information is also fine, ASIC stated, as long as it’s separated from the required information.

The regulator has not included reference to a last minute amendment to the rules proposed by financial services minister Jane Hume that allows advisers to estimate the final two months of their previous years’ fees in the FDS provided during the transition period.

Hume announced the impending change on June 11 after lobbying by the Association of Financial Advisers, with a promise the new regulation will arrive before the July 1 start date.

Ongoing fee consent – no double ups

ASIC used the guidance to confirm that the FDS can be combined with written consent forms that clients will need to sign on an annual basis, as long as the relevant fee information is already included in the FDS.

“Where an FDS and written consent are combined, you will still need to provide the written consent to the relevant third-party account provider(s),” the regulator advised.

When clients withdraw their consent for ongoing fees to be deducted advisers will have ten days to acknowledge the written notice.

Written consent forms will only remain in effect up to 150 days after the clients’ anniversary date unless a new form is signed. At the end of that period the adviser has ten days to notify the client and to shut off the fees.

ASIC also warned advisers that documents such as signed fund manager application forms won’t suffice as fee consent forms.

“Completing a product application form is not enough to satisfy the written consent requirement, unless the form meets the requirements in the ASIC instrument.”

One comment on “ASIC posts long-awaited fee arrangement guide”
    Tom Reddacliff

    Whilst further clarification is welcome this guidance is an example of the challenges faced by licensees, their advisers and ultimately the client. I’m a supporter of principles based regulation, however, when regulatory guidance on the law comes out it needs to be as specific and timely as possible. Two weeks out isn’t helpful. Also, saying ASIC will consider a range of factors in determining whether an FTA is an ongoing fee arrangement and listing a few items everyone already knew continues to leave doubt in the area everyone has been debating. If we want to reduce the cost of advice to the client we need to look at the cost and confusion upstream as well as the documentation advisers put in front of clients.

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