When a fee arrangement is ‘ongoing’
The regulator’s guidance seeks to provide more clarity on what is and isn’t an ongoing fee arrangement given the definition appears only to apply to arrangements of more than 12 months.
ASIC has said it will use a range of criteria to decide if a fee arrangement would be classified as “ongoing”, such as whether the agreement is limited to a fixed-term period of 12 months or less, whether a licensee has systems in place to turn fees off at the end of the fixed-term period, and whether there is an understanding between the adviser and client, such as through marketing material, that the arrangement will apply for less than 12 months.
Commissions may be considered ongoing fees
The regulator has said if an adviser (fee recipient) receives a fee from a third party paid under a commercial arrangement between a product provider and recipient – ie insurance commissions – this would generally not be considered an ongoing fee, but could be if the fee is paid “with the clear consent, or at the direction, of the client”.
OFA anniversary days
The guidance specifies that the “anniversary day” of an ongoing fee arrangement is the date the client signs an authority to proceed with the agreement, not necessarily the day the client starts paying fees and receiving services. For those under the transitional arrangements, the day the client is provided with a fee disclosure statement will become the anniversary day for the following years.
How clients can renew an OFA
Clients can renew an ongoing fee arrangement up to 120 days after the anniversary day of the arrangement, according to the guidance. ASIC says this does not have to be in writing, and may instead take the form of consenting via email or text message, or checking a box on a webpage or digital document. However, records such as screenshots of the signatures must then be kept for five years similar to written consent documents.
If clients do not elect to renew within 120 days of their anniversary day, the agreement will terminate 30 days after this 120-day period. A new arrangement must then be commenced if the client wishes to continue to receive services after this date.
Further clarification on FDSs
The guidance contains some clarification on what advisers should do if they are unable to calculate the exact amount the client will be required to pay during the coming year, such as for advisers who charge asset-based fees.
In this case, ASIC says advisers should provide a reasonable estimate of the amount “based on all the information available” such as expected super contributions during the year, and information on how they came to that estimate.
The regulator also states that FDS may be given electronically such as through an app, but may not be delivered in more creative formats such as video, as they are legally restricted to being written documents.
Transitional period relief
In its guidance ASIC noted that it does not have the power to alter the period of time that must be covered in an FDS, following concerns raised by the AFA recently that transitional FDS must provide an exact breakdown of fees in the previous and upcoming years, which the association said was logistically impossible.
With the government’s announcement on Friday it would make a regulation to address this issue, ASIC said it would update its guidance to take note of this regulation once it was made. The AFA has welcomed the new regulation that the government has said will be in place before 1 July, but has noted that it will make the production of FDS “more manual than usual” in the transitional period.
For advisers who have a disclosure day that falls before the new laws come into force and provide the FDS in the 60-day period after this date, the FDS must include fees for the 12-month period before the FDS is provided, the 12-month period after, and any additional days within the 60-day period between the disclosure day and when the FDS was given.
What accounts require consent
The regulator said that the requirement to obtain written consent to fees does not apply to deducting ongoing fees from an account linked to a credit card or basic deposit product. Advisers’ licensees can also deduct fees from a client’s account on their behalf without needing an additional consent.
If accounts are jointly held by a couple, both members of the couple must give individual consents, ASIC noted.
Example consent form
ASIC provided an example consent form in its guidance that is approximately a page in length, and includes sections on the amount of fees the client will pay, the reasons for seeking consent, how long the consent period lasts, how clients can withdraw it, the client’s account details and signature.
Well that’s now clear on insurance commissions thanks ASIC! This industry becomes more laughable by the day.
Doesn’t this just highlight exactly what is wrong with our industry. We provide a given service, and our clients pay a fee. We provide a statement detailing the fee each year. The client decides whether they wish to continue. It seems ever so simple, yet here we are with ‘mountains’ of explanations, legal jargon and argument. Please ASIC, think again about all of this nonsense. It serves nobody. Nobody.
Let me get this straight “[i]The regulator has said if an adviser (fee recipient) receives a fee from a third party paid under a commercial arrangement between a product provider and recipient – ie insurance commissions – this would generally not be considered an ongoing fee, but could be if the fee is paid “with the clear consent, or at the direction, of the client[/i]”. This must be a joke because as soon as a client signs the SOA’s ATP they have provided clear consent. This industry is fast becoming a quagmire of potential litigation. If this type of oversight was put on Doctors or Lawyers you would hear them screaming from the rooftops. I thought we had gotten close to the bottom of this over-regulation, how wrong was I!
Litigation may actually be the salvation – ASIC may lose a lot of cases on this and other innovative interpretations.
Yes but at what cost to the AFS and Advisers? The collective costs to defend such cases runs into the tens-of-millions all whilst ASIC scalps the industry on Levy’s and forces advisers to bankroll their cases. What cost to mental health? What cost to orphaned clients? The collateral damage is greater than beating ASIC at their own game.
I think ASIC is saying Industry Super arrangements are OK, no problem. Now, Financial Planners can’t do that because the difference is the client knows – so Financial Planner must therefore play within the rules.
Could be wrong.
It is worth noting that Corps Act Section 962A (3) does NOT identify any set term for NOFAs (NON ongoing fee agreements) paid as an instalment. Given all the ridiculous red tape involved with OFAs, what’s the point of using an OFA from July onwards?
With NOFAs, under the Corps Act whatever is agreed between the client & the adviser is acceptable, under the Corps Act. Ie a NON ongoing fixed fee could be paid over 24 months, just like a Telstra Fixed Phone Purchase Plan. If it’s good enough for Telstra, why not advisers?
You are missing the key point here the fee by installments is for a service that has already been provided. So it is charging in arrears not in advance
[i]”The regulator has said if an adviser (fee recipient) receives a fee from a third party paid under a commercial arrangement between a product provider and recipient – ie insurance commissions – this would generally not be considered an ongoing fee, but could be if the fee is paid “with the clear consent, or at the direction, of the client”.[/i]
Right, so now there is a technical difference on what may be an OFA when it comes to an ongoing insurance commission paid by the insurer???
So now ASIC will have the discretion to change the meaning of that law based on their agenda to prosecute an AFS?
Why don’t they just leave the law blank and say “[i]we will make it up as we go along and apply the current law retrospectively as we see fit[/i]” that way it will save us all the trouble of trying to interpret laws that either don’t exist or can be changed as they see fit!?!
That’s what they did with FoFA, simply changing the reporting requirements and their enforcement retrospectively. A very simple way to destroy an industry.
Everyone knocked IOOF when they came out with this ages ago. And now they’re all over this while others are scrambling. Well done guys.
Movie script for a horror movie, and we are the non-speaking extras.
The Texas Chainsaw Massacre, Australian edition.
[b]What accounts require consent[/b]
The regulator said that the requirement to obtain written consent to fees does not apply to deducting ongoing fees from an account linked to a credit card or basic deposit product. Advisers’ licensees can also deduct fees from a client’s account on their behalf without needing an additional consent.
Forgive me, but doesn’t the Advisers Licensee deduct the fee from the clients account and then pass onto the adviser already? Since when do you not need a ‘consent’ to take fees from a bank account or credit card? The ASIC document released this morning raises more questions than answers and would suggest that going forward if you want to adhere to FASEA standards for consent regarding insurance, you will need to provide a FDS and annual renewal to those clients going forward.
Bravo ASIC, this way you will not have to outlaw insurance commissions, just introduce renewals and FDS for ongoing commissions to bring advisers to their knees with admin.
Hi Anonymous
I think that you may have misunderstood the issue. Anyone will always need a client’s consent before they can deduct fees from a clients account – including a basic deposit product. That includes people from outside the financial services industry, like accountants.
The issue here relates to the enhanced obligation FDS in which there is a new rule that the client does not only have to give the dealer/adviser consent to deduct fees, they must ALSO provide a SEPARATE consent addressed to the account provider – e.g. the PLATFORM – for the fees to be deducted by the platform provider and paid to the dealer/adviser. This is new and applies to the providers of all of the client’s accounts – except for where the client has basic deposit products or credit cards.
This is still a moving target! With only 14 days to go before implementation ASIC has announced that it expects the Government to issue FURTHER Regulations on the issue and for ASIC to then update the announcements that it has just made (yesterday). I wonder how much notice we will end up getting regarding the further changes. Still this is coming from the comedians that thought it was a good idea to only give the industry 1 day to compile and issue Transition Period FDSs.
I think the difference is that consent to deduct fees from a bank account or credit card doesn’t have to be provided to the product provider every year. It can be set up as a direct debit and continued until cancelled. It has to be cancelled if the annual OFA isn’t renewed. Consent to deduct fees from investment or super products has to be provided to the product provider every year, in addition to the annual OFA renewal.