In all the excitement of the FPA Congress, and the FPA’s decision to engage a banned adviser to discuss advice and regulation, you may have missed ASIC’s Report 636. This report assessed the industry’s compliance with FDS and Renewal Notice obligations.
Here’s what you need to know.
ASIC’s Report 636 summarises its surveillance of 30 randomly selected 30 licensees and their representatives.
Focusing on these Licensees’ processes and procedures for issuing Fee Disclosure Statements and Renewal Notices, ASIC observed that:
- 7% of the time, fee recipients did not give their client the required FDS.
- 9% (of 1,496 FDS’) were not given within the required timeframe.
- 80% did not include accurate information about the services clients were entitled to receive.
- 73% did not include all the required information about the services clients received.
- 44% did not include the amount of each fee the clients paid under the Ongoing Fee Arrangement (OFA).
- 50%+ did not have processes that reliably reminded them when Renewal Notices were due.
- 50%+ did not have processes that ensured they terminated ongoing fee arrangements.
Interestingly, ASIC’s review sample includes significant businesses such as Yellow Brick Road, Affinia, Pitcher Partners, Interprac, Lifespan, Fiducian and Fitzpatricks.
More interestingly, ASIC has stated that:
- It will contact the 30 Licensees requesting remediation of clients in suspected breaches;
- It is investigating other licensees for potential breaches;
- Where ASIC believe that breaches of the law are more likely than not to have occurred, ASIC will consider litigation;
- ASIC is aware that the Government has agreed that OFAs should be renewed annually instead of every 2 years. (Although the impact of this on FDS’ requirements may require more consideration).
Importantly, don’t over-complicate matters. ASIC, reasonably enough, expect the FDS to be accurate. If in doubt, disclose the gross fees and run the 12 month period from the earliest point of engagement (which may precede the date they first paid you a fee).
ASIC’s Compliance Tips
1. Check when FDSs are due and whether they were provided
Your systems/processes should be able to confirm:
- All clients on OFAs
- legal timeframes to provide clients with FDS
- that compliant FDSs were provided to all your OFA clients.
2. Ensure only services that clients are entitled to are listed in the FDS
Audit the accuracy and consistency of your terms of service to ensure:
- all available/contracted services are listed
- your OFA is consistent with the FDS
- you do not exaggerate the services the client was entitled to under the OFA
3. Keep good records of the ongoing services you provide
- Keep complete/accurate records whether or not you have provided the available/contracted services
- Ensure you can identify ‘fees-for-no-service’ failures and remediate them
4. Ensure your FDSs relate to the fees clients paid
- Record and report gross fees not net fees
5. Get the renewal period right
- You must provide a Renewal Notice and an FDS within 60 days beginning on the renewal notice day for the OFA.
- Count from the renewal notice day +59 days
- Ensure your RN includes a statement that the ‘renewal period’ is a period of 30 days beginning the day the RN and FDS are given to the client.
- If you client opts out of the OFA, the arrangement terminates on the day notification is given
6. Make sure ongoing fees stop when agreements terminate
- If you are charging clients via fee deductions by their product issuer or platform provider, implement controls to ensure 3rd parties correctly implement your instructions
- Run regular reconciliation or exception reports comparing your incoming fee revenue with the fees you should be receiving from OFA clients
In addition to the FDS, a Renewal Notice (RN) must also be given to the client every two years, so that the client may opt in to continue paying the ongoing fee and to receive ongoing services.
A Renewal Notice must include a statement that:
- the client may renew the arrangement by giving the current fee recipient notice in writing of the election;
- the arrangement will terminate, and no further advice will be provided or fee charged under it, if the client does not elect to renew the arrangement;
- the client will be taken to have elected not to renew the arrangement if the client does not give the current fee recipient notice in writing of an election to renew before the end of the renewal period; and
- the renewal period is a period of 30 days beginning on the day on which the renewal notice and fee disclosure statement is given to the client.
If you need a hand with your processes and procedures email firstname.lastname@example.org or give us a call on 02 8330 6628.
We’re happy to help.