Tread carefully on fee disclosure: FPA
Planners aren't obliged to include commissions in fee disclosure statements (FDSs), but they must be careful not to mislead their clients when it comes to remuneration.
Speaking at a Financial Planning Association (FPA) 'Bulletproof Financial Planning' roadshow in Sydney yesterday, FPA general manager for policy and standards Dante De Gori said the FDS regime only covers clients who are paying an ongoing fee for a service.
Clients who only pay trailing commissions are “technically carved out from the fee disclosure regime”, he said.
Given that the first FDSs will be due on 1 July 2013 (for clients with a 1 July anniversary date), practice principals should already be segmenting their client bases based on whether or not a FDS is required, said De Gori.
When it comes to clients who pay an ongoing fee as well as a trailing commission(s), it is up to the planner to decide whether the details of the commissions are included in the FDS.
If the commissions are not included, the planner should include a disclaimer that makes it clear they “may be in receipt of other payments in the form of commissions”, said De Gori.
“You can't mislead the client [so that they believe] they're not paying anything else – or that you're not receiving anything else,” he said.
De Gori also pointed out that FDSs cannot be combined with a financial services guide – even though the two documents contain similar information.
“The FDS is very specific in terms of when [it is delivered] and what is in there. It doesn't mean that you can't attach it to other [advice] pieces – for example the review process or the SOA,” he said.
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