Advisers should be wary of using fixed-term arrangements to avoid ongoing fee consent renewals, as the former will likely end up creating the same amount of work, if not breaching the code of ethics.
Bryan Ashenden, BT head of financial literacy and advocacy, said some advisers talked about the requirements being less under a fixed-term arrangement than they were under the new ongoing fee arrangements.
“Technically, that’s correct but I’d also ask the question whether they are actually saving anything,” Ashenden said.
“If you have a fixed-term arrangement in place and you want to renew it when you start that process about entering another fixed-term agreement… it sounds like you’re going through the same process that you would under the new ongoing fee arrangements and annual consent requirements anyway.
Ashenden said a fixed-term arrangement was typically one that did not go beyond 12 months but could go longer.
“That could be up to in theory 365 days or a period of up to 12 months, just as long as it doesn’t exceed it,” Ashenden said.
“What’s important to remember here is under definition of the law, you can’t have a fixed-term arrangement that goes for two years that gets you out of annual consent or in any way around these requirements.
“A fixed-term contract for two years is technically a fixed-term contract, because it has a start date and end date. But in terms of annual consent requirements, as soon as it goes for more than 12 months, it will [be counted] as an ongoing fee arrangement and the annual consent requirements come into play.
“There will be questions for you as an adviser whether you want arrangements to be an ongoing basis or whether you prefer the fixed-term approach, you may even have a hybrid.”
Ashenden said this came back to Standard 1 of the Financial Adviser Standards and Ethics Authority (FASEA) code of ethics.
Standard 1 states: “You must act in accordance with all applicable laws, including this code, and not try to avoid or circumvent their intent”.
“What was the intent of the law and are we taking steps to try to get around that intent,” Ashenden said.
“Because just changing your arrangement [means] you have to ask the question: am I breaching the code in that regard?”