The industry has generally welcomed the regulator’s guidance on Future of Financial Advice (FoFA) fee-disclosure statements, but a few new questions have been raised.
The Australian Securities and Investments Commission (ASIC) was initially not going to provide guidance in this area and many observers have been surprised by the detail in RG 245, which was released on Friday.
While the guidance is primarily concerned with administration rather than the quality of advice provided, the provision is designed to provide clients with an opportunity to assess whether they are getting value for money for the advice they receive.
Richard Batten, a partner at Minter Ellison Lawyers, described the guidance as “a reasonably clear statement outlining the industry’s obligations without adding much we didn’t already know”, while the Financial Planning Association’s Dante de Gori said the clarity provided was “sensible”.
Regulatory Guide 245 Fee disclosure statements (RG 245) also sets out three limited “no-action” positions ASIC is taking to assist industry make a smooth transition to meeting the FDS obligations within the FoFA regime.
“Following consultation, ASIC has released this regulatory guide to address practical difficulties for industry participants in complying with the fee disclosure statement obligations, without undermining the consumer protection goals of the provisions,” said ASIC commissioner Peter Kell.
“ASIC will take a facilitative approach for the first 12 months of the FoFA reforms, until July 1, 2014. We expect industry participants to make a reasonable effort to comply with the new regime, and we will take a measured approach where inadvertent breaches arise, or system changes are underway.
“However, where we find deliberate and systemic breaches we will take stronger regulatory action.”
Detail open to interpretation
Paul Derham, a partner with financial services lawyers, Holley Nethercote, believes the guidance offers some clarity on certain areas and raises new questions in others.
“Many licensees have told us that it’s hard to track back and find the original start date that they entered into an ongoing fee arrangement with their clients,” he said. “Many AFS licensees were going to have to gear up and get their FDS statements for ongoing clients out before July 30, 2013.
“However, ASIC is providing some comfort to those licensees by allowing them to notify existing clients, in writing, of a date between July 1, 2013 and January 31, 2014 that they will notionally treat as the anniversary of the arrangement (the first disclosure day) and provide the fee disclosure statement within 30 days of that date. They will still need to ‘explain the significance’ of that date to their clients.”
Derham asserts that the amount of detail ASIC is expecting to be included in the fee disclosure statements remains open to interpretation.
“The RG, at 245 paragraph 35 says ‘a fee recipient (like an adviser) could describe whether a client received personal advice on a particular topic’. That’s just an example, but it is a lot more detail than we expected,” he said.
Astrid Raetze, a partner at Baker & McKenzie, said she found it significant that the regulator had stressed that fee recipients should be careful to comply with the general obligations in the Corporations Act and the Australian Securities and Investments Commission Act 2001.
“In particular, it is important to comply with the provisions that deal with misleading or deceptive conduct and false or misleading representations,” states paragraph 33 of the ASIC guidance.
For Raetze, this potentially opens the door for advisers needing to disclose services that clients have paid for but, for whatever reason, have not received.
The Industry Super Network (ISN) also welcomed ASIC’s guidance for the disclosure of ongoing fees for personal advice.
“It is reasonable that clients understand the services they are paying for where an ongoing fee is being charged,” said David Whiteley, chief executive of ISN.
“These measures in the FoFA reforms are filling a regulatory gap to ensure that much needed disclosure is provided to all clients, both existing and new.”
To read the full guidance, click here.
You could use this as an opportunity to re-engage with with your clients. Incorportate it into your 6 monthly or annual reviews and setup new services agreements and fee arrangements with your clients.
Wonder whether the Institutions will have to include the massive cross sudsidisation of their aligned practices and how that impacts on the value for consumers in the statement? Somehow we can’t see that happening…..