Financial advisers who provide personal advice to retail clients under an ongoing fee arrangement have certain obligations under the Corporations Act. The obligation was introduced as part of the Future of Financial Advice Reforms in 2012. Fee recipients face civil penalties for non-compliance with the OFA obligations, so it is important they are in regular contact with clients and demonstrate the value of the services they are providing to clients.
Since 1 July 2021, the obligations in relation to OFAs are:
- Seeking renewal of ongoing fee arrangements on an annual basis;
- Provision of a fee disclosure statement; and
- Obtaining consent to deduct ongoing fees from the client’s account.
Ongoing Fee Arrangements
The OFA obligations apply to personal advice licensees and their representatives (referred to as fee recipients) who enter into an OFA with a retail client.
An OFA exists where:
- The fee recipient gives personal advice to a retail client;
- The fee recipient and the client enter into an arrangement; and
- The client must pay a fee under the arrangement (however described or structured), during a period of more than 12 months
OFAs must be renewed on an annual basis. The anniversary date for an OFA is defined as the date that the OFA was entered into and is the baseline for the timing of renewal.
Fee recipients are required to:
- request renewal of the ongoing fee arrangement during the renewal period (the renewal period is 120 days from the anniversary date); and
- obtain renewal from the client in writing (whether electronically or otherwise)
Where the client does not renew the ongoing fee arrangement during the renewal period the ongoing fee arrangement will terminate 30 days after the renewal period has ended.
Fee Disclosure Statements (FDS)
Fee Disclosure Statements (FDS) must be given no later than 60 days after the anniversary date of the OFA and must include certain prescribed information. FDSs should be concise and easy to read and can be given electronically.
Information to be included in a FDS:
- the amount of each ongoing fee for the previous year;
- the amount of each ongoing fee for the upcoming year;
- the services received by the client during the previous year;
- the services the client was entitled to receive during the previous year;
- the ongoing fees your client will pay after the end of the upcoming year, for the services they are entitled to receive during the upcoming year; and
- instructions in relation to how to renew the arrangement.
Fee recipients must obtain written consent from their clients before deducting, or arranging to deduct any fees under an OFA. Fee recipients require consent to deduct fees from an account the client holds with the fee recipient or an account the client holds with a third-party account provider. The only expectations are for accounts linked to a credit card or that are basic deposit products.
Consent must include:
- the name of the account holder;
- name and contact details of the fee recipient;
- explanation of why consent is sought;
- information about the amount of ongoing fees the client will pay in the upcoming year, or a reasonable estimate and the method used to calculate the estimate
- the frequency of fee deductions;
- details about the account the fee will be deducted from;
- details about how long consent will last;
- details about how the client can vary or withdraw consent; and
- the date consent was given by the client.
If a client withdraws their consent, the fee recipient has 10 business days to notify:
- The client that they have received the consent; and
- The third-party account provider (if a copy of consent was given to them).
A client’s consent ceases to have effect 150 days after the anniversary date unless the client terminates the OFA on an earlier date or gives a new written consent.
Fee recipients are required to keep various records in relation to OFAs, FDSs and consent.
Records in relation to FDSs must be kept for at least five years and include:
- each FDS provided to the client, including the date and method it was given
- any notification from a client to renew (or not), or to terminate a OFA
- where a OFA is terminated, the date and the basis for termination
Records in relation to consent should also be kept for at least five years, these records include:
- each written consent givenby the client, including the date it was given;
- each notice to vary or withdraw the consent, including the date it was given and the date confirmation of receipt of the notice was provided;
- any communications regarding the consent with a third party account provider