Advisers choosing fixed-term fees due to compliance complexity

Financial advisers will need to make sure their fee charging systems for clients in a fixed-term agreements do not perpetuate fees charging over 12 months, a lawyer has warned. 

Herbert Smith Freehills partner, Michael Vrisakis, told Money Management that given the stringent compliance requirements for ongoing fee arrangements, many advisers who found it difficult to meet those requirements had decided to adopt the KIS principle and entered into arrangements of 12 months or less.  

“The reality is that many licensees and advisers are choosing to service clients through a period of 12 months or less,” Vrisakis said. 

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“The really important issue is to make sure that the fee charging systems do not perpetuate fee charging over more than 12 months and that this is incorporated into the arrangement with the client so that they don’t pay fees for longer than the 12 months period. 

“But if this can be achieved, the NOFA – the Non-Ongoing Fee Arrangement – is a good and legally valid alternative.” 

On Tuesday, the Australian Securities and Investments Commission (ASIC) released guidance surrounding ongoing fee arrangements and clarified what was and what was not an ongoing fee arrangement.  

“An ongoing fee arrangement exists when: 

  • The fee recipient gives personal advice to a retail client (‘client’) 
  • The fee recipient and client enter into an arrangement, and 
  • Under the terms of the arrangement, the client must pay the fee recipient a fee (however described or structured) during a period of more than 12 months: see section 962A. 

The following examples are not ongoing fee arrangements: 

  • A payment plan meeting the requirements in section 962A(3), and 
  • An arrangement under which the only fee payable is: 
  • An insurance premium (see section 962A(4)), or 
  • A product fee (see section 962A(5)).” 
  • However, ASIC noted that licensees and advisers “frequently” entered into fixed-term agreements where they changed clients for a period of 12 months or less.  

“There are a range of factors that ASIC will consider in determining whether or not such an agreement is an ongoing fee arrangement. In addition to the terms of the written agreement, these factors include but are not limited to: 

  • Whether the agreement is limited to a fixed-term period of 12 months or less; 
  • Whether fees stop being charged at the end of the fixed-term period and do not exceed 12 months – for example, because the adviser or licensee has back-office or administrative systems in place to turn off the fees by the end of the fixed-term period; and 
  • Whether there is an understanding between the client and the adviser or licensee that the client will be charged for a period of 12 months or less. This can be demonstrated by information given to the client, including brochures and marketing material, and a general record of discussions with the client,” ASIC said.  



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Remind me again why only the wealthy can now afford advice?

Consider also what the requirements are for the sub-12 month fixed fee engagements;
Paying for advice by instalments (s962A(3));
(3) An arrangement is not an ongoing fee arrangement if each of the following is satisfied:
(a) the total of the fees payable under the terms of the arrangement is fixed at the time the arrangement is entered into;
(b) the total of the fees payable under the terms of the arrangement is specified in the arrangement;
(c) the fees payable under the terms of the arrangement are to be paid by instalments over a fixed period specified in the arrangement;
(d) the fees payable under the terms of the arrangement can reasonably be characterised as relating to personal advice given to the person before the arrangement is entered into;
(e) under the terms of the arrangement, there is no fee payment of which, or the amount of which, is dependent on the amount invested by the person, or the amount in relation to which personal advice is given;
(f) the person cannot opt out of payment of any of the fees payable under the terms of the arrangement.

Particularly under paragraphs (a), (b) and (e), the reference is to a fixed fee amount, specified in the arrangement and which is not dependent upon the amount invested or subject to advice which means that it doesn't really work for asset-based fee arrangements.

I'll start the ball rolling here and please remember this is only one person's opinion. I imagine the majority of financial planners advise their clients on strategies which would need to be reviewed to stay on track. By that very nature the advice goes beyond a fixed term and into the ongoing arena. For stockbrokers or accountants I can see this where advice may be non-strategic. In the FP space you need to see your client regularly unless they fire you, so with a fixed term agreement everything stops on day 366 but it's still your advice. It may seem simpler on the surface to do fixed term but we've run this past legal and compliance and find it's better to bite the bullet and go ongoing advice. Clients aren't always able to see you the same time every year and that gives you a few months before you have to start all over again. As I mentioned, this is only an opinion.

My opinion, is that fixed 12 month agreements work from (also from experience).

As you have correctly stated, good financial planners provide advice and strategies that need to be regularly reviewed to make sure they stay on track/remain appropriate. For this reason I find it easy to get new agreements signed every 12 months because the client is regularly serviced/engaged.

Upon saying that, whether its fixed or asset based (both fine IMO), those who actually regularly engage and service their clients wont have a problem. Its those who dont service their clients (real advice and reviews every year) that will struggle. Unfortunately, there are still plenty out there that think 'offering a review' is a service.

We've decided on the ongoing for the reason above. If it's not signed under fixed term by day 366 the fees are off. You still have FDS issues though if the "service" was not provided in the 365 days for FDS purposes. The fact clients have things to do in their life other than be ready and champing at the bit when their adviser calls is unfortunate.

We are slowly and painfully moving most of your clients to a 3 month and 9 month review date inside the FDS period to get around that problem of the second biannual not being exactly in the 12 month period then get relief on the >365 day issue by using an ongoing arrangement. Painful as that is

What a Cluster F%$#!!

@angry - coffee isn't good enough, I started with scotch and punching bag with the ASIC logo on it and then some therapy. I hope to be over it soon but I'm already OVER IT!

Hi SD. Our advice was that if it's an annual agreement (and nothing wrong with that I agree with your sentiments fully) then the agreement has to be different every time, otherwise it'll be seen as ongoing. Maybe the thought is that ASIC will apply more scrutiny on this topic, similar to the wholesale vs retail argument. I guess time will tell. BTW we're self licensed so can only go on the advice we receive.

Well yes exactly, and there in lies the problem, we can all only go on the advice we receive and not everyone sees things the same way.

It really is clear as mud in some aspects, and its not like ASIC are in the business of clarifying things clearly.

I'm confused I thought clients had to sign opt-in every 12 months anyway, how is that different than a 12 month fixed term? I think I need a coffee

Ongoing gives you extra time to sort out the paperwork so the wheels keep turning a bit longer. In our opinion it helps around client flexibility without us having to create a new agreement every time. We have advice that if you show the same agreement twice with no change ASIC may view it as an ongoing arrangement. Again a great example of the well thought out legislation that keeps getting thrown at us.

Gotcha, that makes sense.

Yes, and we have a different legal view that says that it won't be determined as an ongoing service - so it's just a dogs breakfast created by lawyers.

Sounds a lot like the FASEA mess, doesn't it?

I’ve had varying advice myself - I’d be happy to argue that surely you’re entitled to charge your client the same fee next year for providing the same services? Fixed fee accountants do it every day of the week in this country, surely we can do the same if you so choose.

We’ve opted for ongoing fee arrangements, it just suits our client base and advice model a little more. Bloody transient retirees! I didn’t want to end up in a situation where John is over in the damn Kimberley’s again at the same time we need to reach him. We have been renewing our service agreements and getting sign off every year for about 2/3 years now so I’m somewhat comfortable most are used to it but who knows what’s coming next. Good luck to all of us remaining planners out there, it’s going to be a big 12 months!

the solution is to give the client a fee disclosure statement every time you communicate with them and seek their informed consent each and every time. let them know with a summary email as follows (every time you communicate with them): I charged you:

a. for a statement of advice
b. implementation fee
c. ongoing fee

send them an email each half-year, and then a fds and annual opt-in every 12 months and tell them they don't have to continue on with the arrangement if they don't want to.

keep telling them to the point you push them to leave that way you won't get any complaints about fees for no service.

make sure you include a fsg, an adviser profile, and also AFCA details in bold so they know where to complain.

And Intra Fund Advice Fees roll in week after week after month after year - absolutely no Opt-out, no FDS, no need to provide any service or advise - client can never call and you never call the client it's all OK - doing this for the best interests of someone.
All under a Liberal Government - who will be looking for votes. Not likely.

Well they do say imitation is the most sincere form of flattery...

Its frustrating, but here is some 'free advice' for you. Its much more fruitful to adapt rather than spend your time sulking and complaining.

Good luck.

YOU may have to adapt to the financial advice landscape, as you may not have many options. for those of us with lots of options, we don't have to adapt.

circumstances can be made to adapt to me. and our expectations of reward, and our expectations of work-life balance, our expectations of what is and what is not a hassle worth putting up with.

capeesh.

that's what happens when you already have more than one master's, and already passed the fasea exam, and are already independently wealthy so you work as a hobby not to make a living.

there have been lots of stupid laws (they are man-made so it is natural), more often than not in the fulness of time, they get repealed. remember slavery, apartheid, same-sex couples not being allowed to marry, women not being able to vote? they were the laws at one point in time.

just because I don't agree with the laws (i understand the intention) doesn't mean I am incapable of adapting or I am wilfully going to disobey them. I think the laws are counterproductive to the point where they are producing significant unintended consequences to leave our society worse off.

it's not just me saying so buddy, look at the numbers, the vast majority agree with my view. not yours. so before you make comments look at the data. data never lies.

in fact, what I am doing is better than you, in that I am challenging the powers that be and telling them that they haven't thought through the serious repercussions and harms that consumers and participants in the industry will experience to the point where it will cease to function effectively. it's already at that point.

so I am actually a more loyal, better-informed industry participant than you are and obviously substantially more qualified to boot.

Champ, I actually agree with everything you have said there.

These rules benefit nobody, however, they are the rules so we adapt and meet them or we sit back and complain or leave the industry. I never said I support said rules, I did say any good adviser servicing their clients each year can continue to operate.

All you have written (outside of the patting yourself on the back... a lot) is that you'll adapt to the rules until they hopefully change to something that is more practical. That being my exact point.

that's silly. your argument is not credible.

if these rules benefit nobody as you assert, and they are apparent to even you, and in fact are a detriment to doing the very thing they were designed to assist in doing, we should be jumping up and down saying these rules will harm people, are no good and society will be worse off.

of course, you agree with me, I am smarter and richer, and more handsome and substantially more educated than you and I understand these issues a lot better, and more comprehensively than you.

let's leave it at that, mate!

Oh yes, I am sure somebody so smart, rich, handsome and educated absolutely devotes their time to imitating other anonymous contributors on the comments section of a website haha.

There are a lot of rules throughout life that don't make sense, but you adapt or die.

Good luck.

you are a fool and will be resigned to the scrapheap in due course (if not already). I am a winner. you are NOT so much. FOOL.

I don't need good luck, I am a millionaire many times over. I make my own luck. and have.

it is you with little talent, that needs great luck pal. making foolish comments on matters beyond your intelligence, comprehension, and capacity.

I would wish you good luck, but she won't choose you either. as Winston Churchill would say, you are a sheep in sheep's clothing.

Haha. I hate to break it to you, but you’re not convincing anyone. You show no traits of success, merely panic.

I know change is stressful but you can still get through this.

mindless fool. most people would call you a "nutter". braindead sheep.

you belong in the same camp as Terry McMaster. get lost pal. this forum is for intelligent people. NOT dumb people like you sheep in sheep's clothing.

Anonymous, you sound like an idiot. SD is actually agreeing with you but providing sage advice and all you do in reply is a weird, freaky, off-putting, very mentally-unbalanced & deranged rant. Here's some more advice: take the pills you psych doc gave you, take a deep breath and put down the alcohol.

Oh, and smile. Jesus loves even the likes of you. :) :) :)

Let’s make Advice more Affordable says Ms Hume, LNP & ASIC.
Then let’s do the complete opposite and Lie, Lie and more Lies and hope Advisers believe us.
LNP need to be voted out.
Frydenberg must go.
Hume must go.
ASIC must be cleaned out.
What a bureaucratic bumbling mess.
Ah but wait let’s have no compliance General / Intra Fund Advice and no FDS via call centre jockeys and Robo’s.
For F##k sake it’s beyond a joke.

My clients love paying extra for complex fee arrangements (only joking)

What Michael Vrisakis fails to elaborate on is that nowhere in the Corps Act Section 962A (3) does it mention a 12 month term. It simply says that the adviser & the client can agree on a fixed term that they both agree on. It could be 6 months, 12 months, 24 months, 36 months or even 60 months. There is NO set term in the Corps Act in relation to NOFA. So this needs to be locked away by Minister Hume ASAP. You either create "cost effective" advice, or you create ridiculous annual renewal red tape. What is best for the client here?

what profound thoughts you have! you are a genius (i mean that sincerely). where does the client's best interest feature in all this? clearly nowhere.

there is one thing even the senile old hayne got right, and he said, (paraphrasing) adding more regulations isn't the solution as it increases complexity all the more, and in fact, he wanted the laws simplified and based on principles rather than prescription as prescriptive regulations create check the box mentality which is a perverse outcome and is a prominent feature of our current system.

I am leaving after already completing the post-grad education requirements and fasea exam because all I do all day long is file more forms that don't help the client, I joined this profession to help clients, I cannot do that anymore without great difficulty, so much so that it is causing undue stress and hardship and taking a personal toll on my mental well-being and that of many advisers and their families.

I obey the law. I always have, and it is a sorry state of affairs when some of the most qualified advisers who have already completed the education and exam requirements are leaving, and in droves.

Yes SD2. This is purely being imposed by the Union Super Funds to increase market share. And some Treasury Advisers know it. The Hayne2 mess has nothing to do with serving the clients best interest, just the interests of the Union funds.

It is working very well - follow the money - and it is all moving to Industry Super. Even saw REST advertising "Free Advise" on TV last night. So easy for them - it is not by accident - seems to be by clear design.

and it is therefore fitting for a highly qualified adviser like me to say this is not the right thing because it is going to produce a bad outcome for our society, and therefore as I live and work, and serve in this community the well-being of my community and those I serve, directly and indirectly, impact me, the most appropriate thing for me to do is protest.

in fact, it is my duty to do so, as a constitutional right I have conferred on me as an Australian citizen member in a free and democratic society.

anything less would not meet std 12 of the fasea code. so I am doing exactly what I ought to do, and others are not either understanding their role and responsibility and not doing ENOUGH or not reading the fasea code as they should.

The Union's "free advice" scam is going to hit the wall sooner or later, if all retail advisers keep highlighting the fact that being forced to compulsorily pay 40 years of ongoing fees from your super fund, in order to help pay for someone else to get advice on the cheap, is THEFT. The fact that the FPA is supporting the intra-fund racket (as it currently exists) speaks volumes. Whatever happened to "user pays"?

I once took an Uber ride from one part of town to another. The driver used a GPS.
But what happened next was quite interesting.
Every traffic light, the driver stopped on the side of the road, gave me a detailed report of how we went from the last traffic light to the current, gave me a disclosure of the total Uber fee and the break down of how much he would get from this and asked me to sign a form that allowed him to continue the journey. We made 10 stops along the way and I felt stress and became annoyed from this whole situation. After all, he is an Uber driver and he takes me from point A to point B.
Somewhere midway, I decided not sign the opt in form and took the bus. Needless to say that I was late to my meeting with my client and he decided to leave me to another adviser as well. Worse day ever!

a further analogy to yours is mine, a passenger boards a 747, a Dreamliner, a Concorde, whatever, the pilot has their pre-approved flight plan, and the passenger boards the plane.

the pilot who is highly trained and has a license to fly issued by the civil aviation safety authority, and has fulfilled all of their licensing requirements does not then come to the passengers economy seat, or business class seat, or first-class seat and show them the flight plan to get their approval of the flight plan, stupid.

the pilot flies the aircraft safely to the intended destination. gets on the microphone at the end and says, thank you for flying with us, see you again.

If the aircraft is impacted by externalities, and the pilot is well trained and experienced she lands on the Hudson (river off of midtown manhattan NY, see US Airways Flight 1549) and saves all passengers to the best of their ability. if the aircraft is faulty the aviation authority examines the plane, and also the pilot's judgment and exonerates the pilot if the plane is faulty or they did their best under the circumstances as someone with similar training education, and experience.

why is it different for me ? the financial planner when I am more highly trained with an m.fin plan (AQF9) and fasea exam than either a pilot (AQF7), lawyer ( AQF8, only 10 hours CPD in NSW pa), accountant (AQF8), or doctor (AQF7)?

are we all not EQUAL under the LAW, the law must treat all professions with similar education and training the SAME!

the problem is that the Fed Govt is forcing everyone to have the same training as the Captain of an airliner, when in reality for most a Uber license will suffice.

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