In order to comply with the Future of Financial Advice reforms, advisers will have to have Fee Disclosure Statements that set out fees received in the past 12 months and also provide information about which services were actually provided.
“An engagement letter that clearly lists their services will make this simple and the list can be replicated in the FDS with a tick or a cross to show whether or not the service was provided,” said a statement from The Fold.
As well as simplifying the process, Wivell-Plater said providing FDS information in a client engagement letter will have legal and contractual benefits.
“After FOFA, the client will be responsible for paying the fees; even if they’ve provided a direct debit authority, they can revoke it at any time,” she said.
“An effective engagement letter will give advisers a contractual right to recover their fees.”
Wivell-Plater also said the common practice by advisers of including details of their service offering in a statement of advice (SOA) is not ideal.
“It’s not a great approach because as well as cluttering up the SOA, disclosing fees at this stage of the process is, in many cases, too late,” she said.
“For advisers to comply with the best interests duty, the client needs to understand and agree to any limitations on the advice in advance.”
Thanks DW…but you do realise some dealer groups may it very hard to leave, as a deterrant. You would hear about that alot no doubt.
It is on my mind, but one must be careful not to jump out of the frying pan into the fire.
Gerry—–simple—change dealer group. Our group does B-pay DD etc into 3rd party nominated account and we take it out when it arrives. Excellent audit trail-no fees or %%% from it. We pay a FLAT monthly fee to our DG.
Thanks Dave W
Of course, many advisers can’t charge by direct debit if there is a licensee involved, because the licensee wants to make sure they get their clip first and it stuffs up the volume over-rides. I’ve already enquired with my dealer group and that’s the answer i get back.
So, inevitably, taking a fee from the platform remains the most effective method of charging for most of us….however, now we’re subject to opti-in and fee disclosure statements. Tax wise, adviser fees charged from the super fund are deductible. Just wondering how you get on with that issue?
Gerry
your engagement should be of a contract nature which is enforceable. Payments by DD, flat fee from FUM etc referencing back to the agreement.We don’t invoive monthly for direct payment, the invoice shows pates, amount and account details which is given at the start of the term. Clients are encouraged to set payments automatically. If they stop-call and remind -its simple. If they don’t pay- send them a farewell letter–you are then cleared- but get whats owing first. if you have a good relationship-there shouldn’t be a problem, cross that bridge when it happens
Has anyone worked out yet what happens when a client doesn’t pay their fees and /or doesn’t send back an opt-in letter?
Serious question…because it does and will happen. Advisers that send out invoices to clients whould know the answer. What happens with the clients portfolio of investments? What’s the legal obligation here?
Great to see a view from the legal profession backing this practice. I would have thought planners would have been using engagement letters already. It forms a contract if worded correctly, sets out the minimum service level-smart advisers exceed the service level and guess what–the fees are set out AND the client signs the agreement. It’s that easy.