An opportunity to simplify fee consent in the hands of professionals

Getting the fee consent process right has the potential to lower the cost to serve and making quality advice affordable; accordingly, the Final Report of the Quality of Advice Review has made certain recommendations to streamline fee consent.

In this article, I argue that we can go even further – it’s time to recognise the professionalism that financial advisers are demonstrating today and rely on advisers to facilitate an improved and more standardised fee consent process.

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Financial advisers have been operating under the Financial Planners and Advisers Code of Ethics for over three-and-a-half years now. In the 18 months that the Financial Services and Credit Panel have had responsibility as the “single disciplinary body” for financial advisers, there have been two decisions published that reference the performance of advisers, with one of those explicitly noting concerns around compliance with the Code of Ethics.

When considering some of the recommendations from the Final Report of the Quality of Advice Review, and the response by the government to those recommendations, there is a role that financial advisers could play which could be instrumental to achieving the goal of the Review, to make quality advice more affordable and accessible.

Recognising the role of a professional financial adviser, and their requirements under the Code of Ethics, could go a long way to dealing with some of the regulatory red tape issues the Government has grouped into Stream One of their response – and this could then reduce many of the implementation issues that advisers face which, ultimately, have added to the cost of advice.

In the Final Report, the Review has recommended that the need for fee disclosure statements (i.e. information relating to the last 12 months) should be removed. Given this is information already available to a client, this is a positive change that will reduce the administrative duplication many advisers face today, and the Government has agreed to this.

As part of the same recommendation, there was a call for a single standardised and prescribed form to be developed for the annual consent requirements, and that this should be accepted by product providers. This was also accepted by the government, but there are some important issues that could be contemplated that could further improve the process.

In the Final Report, when discussing the recommendation, Michelle Levy has called for the development of a single prescribed form to be used to capture the consent requirements, but noted that multiple forms would still be required when fees are to be deducted from different accounts held by different providers. Whilst the prescribed forms will have the same look and feel, the need for multiple forms for different providers means many of the current issues advisers face could still exist. Is this where the professionalism of the adviser can overcome such issues?

Under Standard 2 of the Code of Ethics, advisers have an ethical obligation to act with integrity and in the best interest of their clients. The best interests requirement here is not about the best interests duty in the Corporations Law that focuses (currently) on the process to develop advice and strategy recommendations, but is an ethical behaviour-focussed requirement. Incorporating it in a standard with the integrity requirement demonstrates this intent.

Under Standard 7, advisers have a requirement to ensure the fees they charge are fair, reasonable and represent value for money for the client. This standard was largely designed to prevent the over-charging of advice fees and concern that arose around issues of fees being charged for no commensurate services.

Under a revised fee consent process, where an adviser is bound by the ethical requirements under Standards 2 and 7 of the Code of Ethics, I’d argue that an adviser should be able to provide a single annual consent form (and accompanying relevant disclosure requirements) to a client, and have them sign that singular form. The adviser can then attest to a product provider that such a form has been duly completed by a client, and the product provider can then rely on that attestation as evidence of the client’s consent. Such an approach could allow for a client to only sign one annual consent or renewal form which, from a client’s perspective, would make sense as they are entering a single on-going relationship with their adviser.

With regard to the collection of the fee from product providers, where the fee is split across multiple products or providers, a provider should be able to accept the split of fees as provided by the adviser, without needing to see this specifically split and stated on a client consent form. Licensees could play a role to ensure that the fees collected from a provider match the consent arrangements with clients.

If it was thought to be necessary to have the fees by product provider split and noted on the consent form, and this needed to be provided to the product provider, it’s possible this could be achieved through the single consent / renewal form between the adviser and their client, with this single form provided as part of a renewal process to each provider, with other provider information redacted. Whilst this may require some additional work from an adviser, it still simplifies the process with the client to a single consent form that is in the one format.

If one product provider needed information that was different, or required it in a different format, to another provider (for example where fees are from a super account, or an investment account), or where one provider only allows for fees on a fixed dollar basis and others allow for it on a percentage basis, this again can be completed between the adviser and the product provider without the need for the client’s involvement, but with the client’s consent form uploaded for completeness as required.

The adoption of a standardised annual consent form, in line with the review’s recommendation and the government’s response, will require some level of change to existing processes. This is unavoidable. But if we can place reliance on the professional conduct requirements of financial advisers, as required under the Code of Ethics, then perhaps a solution can be implemented that has the least impact on clients, and perhaps even improves their engagement in an ongoing advice process.

Bryan Ashenden, head of financial literacy and advocacy, BT