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The Transition Period to Meet Fee Disclosure Statement Obligations has Ended

Posted on April 27th, 2017 by Sophie Gerber in AFSLs

The Australian Securities & Investments Commission (ASIC) released an updated Regulatory Guide 245: Fee disclosure statements (RG 245) in February 2017 to reflect regulatory and legislative changes relating to financial advice providers, and remove exemptions which previously existed.

All AFSL holders providing financial advisory services should review the latest version of RG 245 to ensure you are properly fulfilling your FDS obligations.

RG 245 provides guidance on Fee Disclosure Statements (FDS) which must be issued by Australian Financial Services (AFS) Licensees and representatives of AFSL holders who have entered ongoing fee arrangements with retail clients.

There were various instances in the past where financial advisers charged their clients fees without providing them with financial advisory services. To address this issue, FDS obligations for financial advisers were introduced as part of FOFA reforms and ASIC introduced the Wealth Management Project in 2014 to focus on the conduct of the largest financial advice firms in Australia.

Recent Media – Why You Should Pay Attention

In 2015, ASIC announced it was carrying out investigations on multiple instances of AFS Licensees charging clients for financial advisory services, including annual advice reviews, when no advice was actually provided.

In October 2016, ASIC announced the release of Report 499 Financial advice: Fees for no service.  The report provided an update on ASIC’s progress towards addressing systemic failures by Australian financial institutions and advisers in the provision of ongoing advice services to clients. Examples included situations where clients were charged a fee to receive ongoing advice service, even though such a service had not been provided.

Fee Disclosure Statements Obligation

Under the FDS obligations, advisers who have an ongoing fee arrangement with a retail client are required to provide the client with the following information on an annual basis:

  1. The fees paid by the client;
  2. The services provided to the client; and
  3. The services that the client was entitled to receive.

The FDS must disclose information in relation to the previous 12 months of ongoing fee arrangements. An ongoing fee arrangement exists where a retail client is given personal advice and charged an ongoing fee during a period greater than 12 months. This obligation on financial advisers helps clients to determine whether the ongoing fees they are paying are proportionate to the services they have received, or were entitled to receive. Clients now have a better opportunity to understand the fee breakdown and are able to raise disputes if they consider the ongoing fees to be disproportionate to the services received.

The Transition Period is Over

In 2013, ASIC adopted three limited no-action positions to provide a smooth transition for AFS Licensees to meet the FDS obligations within the Future of Financial Advice (FOFA) regime.

The key update in the latest version of RG 245 in February 2017 is the removal of all three no-action positions previously available to AFS Licensees. These no-action positions provided exemptions from meeting certain requirements relating to issuing an FDS. Since the FDS obligations have been in force for some time, ASIC considers that all AFS Licensees should be meeting all FDS obligations. Other updates reflect technical amendments to the FOFA legislation from the previous release of RG 245 in March 2013.Previously the no-action positions were introduced to extend flexibility to the following three situations:

  1. A financial adviser who was in breach of the FDS content requirements specified in s962H of Corporations Act 2001 (“the Act”). If a breach occurred due to the financial adviser being unable to obtain essential information from the client of an ongoing fee arrangement;
  2. A financial adviser was in breach of s962S of the Act solely because the FDS was provided earlier than the disclosure day; and
  3. A financial adviser was unable to provide an FDS to existing clients who were on-board pre-FOFA within a period of 30 days, as the financial adviser was unable to determine the day the ongoing fee arrangement was entered.

For further details on the guidance of FDS, please refer to RG 245.

Angela Yang

Angela works with the Compliance Team with a particular focus on drafting and amending compliance documentation to tailor to our clients needs. She also assists with AFSL and ACL applications as well as compliance reviews. Angela also works with the Legal Team by providing ongoing assistance in drafting documentation and legal research. Angela assists the compliance consultants in implementing ongoing compliance support, updating procedural documentation and preparing compliance reporting for Compliance Committees and Board of Directors.