Do you have an ongoing fee arrangement with your financial adviser? If so did you know that by law, they are required to provide you with a Fee Disclosure Statement (FDS) at least every 12 months? The FDS should set out details about the amount of ongoing fees paid, information about the services you were entitled to receive under the arrangement, and information about the services you actually received.
In addition to the FDS, if you have an ongoing fee arrangement with your financial adviser, they are also required to provide you with a written notice every 2 years to renew the arrangement. According to Corporations Act 2001 that governs these requirements, when you receive these renewal notices, if you either opt-out or do not actively opt-in, the ongoing fee arrangement is considered to be terminated. These notices significantly reduce the likelihood of passive or disengaged customers being charged ongoing fees.
The FDS and written renewal notice requirements were implemented as a part of the Future of Financial Advice (FOFA) reforms in 2013 and failure to comply terminates the entitlement of the Australian Financial Service (AFS) licence holder to charge an ongoing service fee to the client and may result in civil penalty action. ASIC oversees and enforces these requirements as well as remediation programs resulting from consumers paying fees for no service.
Thus far, ASIC’s remediation programs have resulted in AFS licence holders paying a substantial amount of compensation to consumers who have not received either the FDS and/or renewal notices. That amount is set to increase with the commencement of an ASIC review into compliance of financial advisers with the FDS/renewal notices requirements.
The review itself stems from a high number of breach reports received from AFS licensees that indicate failure to comply with FDS and renewal notice requirements. While ASIC will investigate these particular instances of breaches, it considers that the volume and range of breach reports received to be a significant risk to consumers, therefore has initiated an industry-wide review.
The review will examine to compliance across a range of small and large AFS licensees including whether:
• FDSs and renewal notices were issued to customers;
• FDSs and renewal notices were issued within the time frames set out by law;
• FDSs included the required content and was accurate (eg describing what customers were charged for and what services were received); and
• Appropriate procedures were in place to ensure fees for ongoing services were discontinued when arrangements were terminated as a result of licensees failing to comply with FDS or renewal notice requirements.
The results of this review will be released next year, in the meantime, ASIC will continue to investigate substantial breaches and take enforcement action where required.
