With the Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 set to return to Parliament for debate next week, AFA general manager of policy and professionalism Phil Anderson said the association had encouraged Treasury to address issues with FDS requirements that could be “a recipe for disaster” if not fixed before the industry moved to annual agreements.
“If money comes out of the client’s account at the end of one month and it’s paid to the licensee at the start of the next month, it may be in a different FDS year in a sense that the adviser had prepared the FDS on the basis of when the licensee had received the money, as opposed to if it was done on the basis of when it was taken out [of] the client’s account,” Mr Anderson said.
“ASIC have suggested advisers need to do manual checks to make sure they have the right amount in fee disclosure statements.
“Advisers rely on their licensee’s remuneration system to process FDSs – they would need to completely rebuild their systems and have capacity to download information from product providers rather than rely on the information they get through their remuneration systems.”
Mr Anderson pointed to ASIC Report 636 on compliance with FDS and renewal obligations, released in late 2019, which showed significant numbers of FDS did not include all the required information, and pointed to discrepancies between product providers’ and licensees’ fee systems as a key reason for this.
“An FDS should include the amount of each ongoing fee paid by the client under the OFA in the previous year, and accurately reflect when those fees were paid by clients. It is a matter for you, the fee recipient, to determine how to ensure your FDSs include accurate information about the fees clients paid,” the report stated.
“If your clients pay ongoing fees through product providers, some methods may include logging into the product issuer or product platform website or portal to check when fees were deducted from each client’s account; [and] producing FDSs only when you are confident that you have complete data from the product issuer about the ongoing fees the client paid during the previous year (while still meeting the FDS timing requirements).”
Mr Anderson said the AFA had discussed the possibility of a no-action position on the issue with ASIC, and had been expecting it to be addressed in the government’s annual renewal legislation.
“Our conversations [with ASIC] were around the implementation of the royal commission annual renewal recommendation to be the basis to fix the issue – seemingly it’s fallen between the cracks and now our hope is that before the legislation is passed, it can be amended to fix this,” Mr Anderson said.
“We have mentioned it to the Treasury, seemingly it was not something that they were aware of.”
Mr Anderson said the association was hopeful an amendment could be added to the bill to allow advisers to present FDSs to the client on the basis of when fees had been received by a licensee rather than debited from the client’s account.
Many Licensees were aware of this issue yet none of them have brought this to the government’s attention even when feedback was requested. What is the point of Licensees? I agree with the SMSF Association that they should just be service providers. They charge exorbitant fees as they are at risk along with advisers but then via their AR agreements push the risk on to the advisers in any case. Good on the AFA for bringing up these issues. What is the FPA doing?
On top of this, the new annual renewal will require us to estimate future fees. For any clients with a percentage fee model, that will entail forecasting future returns (a minefield), SGC, pay rises, other contributions, insurance premiums etc. etc. There will be so many avenues for ASIC to ping us on this, they will be licking their lips. What a basket case this industry has become.
All this complication – the agreements should simply be opt-out; the formality should only come into play when the fees need to be reviewed upwards. My goodness, Cormann was right, we are gold medallists in “red tape’ in Australia – especially when the ‘state’ seems to want to protect people form themselves because they are apparently to dumb to so? Bloody nanny state mentality!
a no action position sounds at least fair, if they don’t give a ‘brass razoo’ then why should we ??? this is all a b f joke, asic you show no leadership.
How about you just get rid of them all together. If the client is signing a document to continue with your service each year that clearly states the fee payable, why do they need an FDS to tell them what they paid last year… It doesn’t make any sense.
I went through this with a client this morning. Issued the CSA and went through it and she signed off. I then presented her with the FDS and she shook her head.
He largest concern is that she is paying for my time to prepare and produce documents she gets no value out of. Her comments were:
“If Ï wanted to know what I paid you I can just look at my online portal or refer back to CSA I signed last year, why do I need yet another document to tell me this.
Thankfully she understands that it is an obligation and we have to produce this.
This is such a mess, there is only one way to eliminate FDS, & that is to charge one-off fees. Which is not always necessarily in the best interests of consumers. This type of regulatory mess would never be accepted by other industries. If the client has in writing in their SoA that they are being charged $55 a month, that should be the end of the matter, until that fee is changed (with a future SoA). It should be as simple as that.
What a mess
That is just one issue. Another is GST with some product providers charging 2.5% GST and others 10% with both paying 10% GST to the adviser. In other words, in many cases, licensees receive amounts that differ from what the clients are charged and if the higher amount is reported, that is a breach.
I am SO looking forward to Choice magazine and all other subscription companies having to do annual Opt-in for their products. A bit like annual elections, really.