“A whole new world (a whole new world)
A new fantastic point of view
No one to tell us, “No”
Or where to go
Or say we’re only dreaming”
— A Whole New World (End Title) lyrics © O/B/O Apra Amcos
A Whole New World
Welcome to the new age of annual service agreements and fee disclosure obligations
The new regime which comes into effect 1 July 2021 ensures that:
- A client’s ongoing service agreement must be renewed annually;
- You must record in writing each year the services that the client will be entitled to receive and the total of the fees that are to be charged; and
- You may neither permit nor require payment of fees from any account held for or on behalf of the client except on the client’s express written authority to the entity that conduct that account given at, or immediately after, the latest renewal of the ongoing fee arrangement.
Come 1 July 2021, we will see the new Ongoing Fee Arrangement regime change to a 12-month cycle, where the ongoing fee arrangement date will become the anniversary date; where licensees will be required to issue what could be a singular document including the ongoing fee arrangement plus fee disclosure statement and where consent will need to be collected before fees can be deducted.
All ongoing service agreements entered into on or after 1 July 2021 will need to adopt the new requirements, which will we cover off in detail and include templates for your convenience.
For those client who were still operating under previous exemptions for ongoing fee arrangements entered into prior to the Future of Financial Advice reforms, from 1 July 2021, they are removed.
For ongoing fee agreements entered into prior to 1 July 2021, you will have a 12-month transitional period in order to:
- Amend your process to facilitate the production of annual ongoing service arrangements and fee disclosure statements;
- Create a process to issue and collect written consent;
- Amend your FSG and related documents to accommodate the new ongoing service arrangement regime;
- Prepare your ongoing service arrangement and fee disclosure templates in line with prescriptive drafting requirements; and
- Amend your compliance manual and related policies to enshrine the new regime.
Let us unpack each element in turn…
1. Processes to facilitate the production of annual service agreements and disclosures
An ongoing service agreement must be given no later than 60 days after the anniversary day for the arrangement each year
- Create a process to facilitate the 120 day renewal period
- Create a process to collect consent taking into consideration the 150 days after the anniversary date provision
- Update your ongoing service arrangement/fee disclosure registers
- Create a consent register
- Create a process to capture instances where fees have been deducted without consent aligned to the 10 business day reprieve before civil penalties are applied
2. Create a process to issue and process written consent notices
ASIC has recently issued a sample written consent form Sample Written Consent Form – ongoing fees (asic.gov.au)
ASIC Corporations (Consent to Deductions – Ongoing Fee Arrangements) Instrument 2021/124 prescribes the following drafting requirements for your written consent forms:
- the name of the account holder;
- the name and contact details of the fee recipient;
- an explanation of why the account holder’s consent is being sought;
- in relation to an existing ongoing fee arrangement that might be renewed by the account holder —the frequency and amount of each ongoing fee the account holder will pay during the upcoming year if the account holder were to renew the existing ongoing fee arrangement, where the upcoming year is a period of 12 months beginning on the next anniversary day for the ongoing fee arrangement;
- in relation to a new ongoing fee arrangement that might be entered into by the account holder —the frequency and amount of each ongoing fee the account holder will pay during the upcoming year if the account holder were to enter into a new ongoing fee arrangement, where the upcoming year is a period of 12 months beginning on a day that is no more than 30 days after the fee recipient gives or makes available to the account holder all of the information that this subsection requires to be included in a written consent;
- if the amount of an ongoing fee the account holder will pay during the upcoming year cannot be determined—a reasonable estimate of the amount of the ongoing fees the account holder will pay during the upcoming year and an explanation of the method used to work out the estimate;
- details of each account from which the account holder will pay ongoing fees and, for each account, the amount of each ongoing fee the account holder will pay from each account;
- statements to the effect that:
- the consent will cease to have effect up to 150 days after the anniversary day for the ongoing fee arrangement; and
- the account holder can withdraw their consent or terminate or vary the ongoing fee arrangement at any time by notice in writing to the fee recipient.
In addition to managing the written consent obligations, you will need to create a process to ensure that can monitor where you have deducted fees without a valid consent. If you repay the amount into the account holder’s account within 10 business days of the day they were accepted, you will avoid civil penalties.
3. Amend your FSG and related regulated documents to accommodate the new ongoing service arrangement regime
If you have included a description of your ongoing service agreements in your Financial Services Guides and related regulated documents, you will need to update them to align to the new regime.
4. Prepare your ongoing service arrangement and fee disclosure templates in line with prescriptive drafting requirements
Fee disclosure statements—content Item 11 in Part 1 of Schedule 1 to the Bill repeals and replaces subsection 962H(1) to require the fee disclosure statement to include:
- information about fees charged for the previous 12 months as well as fees to be charged for the upcoming 12 months. The information relating to the upcoming year must include:
- the amount of each ongoing fee payable by the client to the fee recipient
- the services that the client is entitled to receive
- the amounts of any ongoing fees payable after the end of the upcoming year for a service provided in that year and
- any other information that may be prescribed by the Regulations. If the amount of any ongoing fee cannot be determined, the fee recipient must provide a reasonable estimate of the fee and a statement about how it is calculated;
- inform the client that he, or she, may renew the ongoing fee arrangement by notifying the fee recipient in writing;
- state that the arrangement will terminate if the client does not elect to renew;
- advise that the client is deemed to have elected not to renew if an election to renew has not been received within the renewal period; and
- state that the renewal period is 120 days beginning on the anniversary day.
5. Amend your compliance manual and related policies to enshrine the new regime
You will need to update the relevant sections in your compliance manual and related policies dealing with the ongoing service arrangement and fee disclosure statement.
We’re here for you, so reach out to us for obligation-free advice.