Dealer groups are likely to face contrasting challenges in implementing the new disclosure requirements for Australian financial services (AFS) licensees. Paul Derham, a partner with financial services lawyers, Holley Nethercote, says he has had a busy week in the wake of the latest regulatory guidance (RG245) release.
“We have heard from lots of industry members about how they will be approaching the Fee Disclosure Statements (FDS) and what issues they are concerned about,” he told Professional Planner Online.
“The issues, as you would expect, vary from licensee to licensee. From what we know there isn’t going to be a one-size-fits-all approach to FDS.”
However, there is light at the end of the tunnel with another partner, Tim Nethercote, predicting that “this will ultimately become a fairly mechanical exercise” and that, for many licensees, this process can be automated as part of the opt in requirement.
Resetting disclosure dates
For Derham, the most pressing question is around the resetting of disclosure dates.
“In relation to resetting the disclosure date, if a licensee is having trouble establishing the anniversary date that they entered into an ongoing fee arrangement with their client, just what does ASIC mean by ‘unreasonably difficult’ or ‘unreasonably onerous’ [in order to take advantage of the ASIC concessions at 245.61 and 245.62]?” he asks.
“And, this is probably going to vary between licensees – as a large corporate organisation might be expected to have better ‘computerised’ records than a small planning practice. What is ‘unreasonable’ to a bank might be totally different to a one-planner practice.”
Three ways to get started
Derham recommends that licensees get started in three areas:
- Identify the nature of arrangements with product providers and clients;
- Read RG245 (again); and
- Try and identify the date of the arrangement you first entered into ongoing fee arrangements (the anniversary date) with existing clients.
“Management of client expectations and how to explain why disclosure in the Statement of Advice may differ from that in the FDS is something that is not so much a legal question – but certainly one that the industry is talking about,” said Derham.
A FDS will need to be provided to all clients who have an ongoing fee arrangement that lasts for more than 12 months. These FDS reforms will commence on July 1, 2013, however advisers can elect to comply with their disclosure obligations before that date.
