Fixed-term fees not a way to evade ongoing fee consent

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.

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“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?”




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The big difference between a series of fixed term annual contracts and an ongoing agreement is that fixed term contracts aren't subject to the same level of bureaucratic pedantry from regulators. As long as informed client consent is obtained each year, fixed term annual agreements are perfectly consistent with both the letter and the intent of the law.

Bureaucratic pedantry isn't the intent of the law, it's just a byproduct of badly designed and implemented regulatory processes.

I am struggling to understand why Bryan and BT keep trying to call into doubt the validity of FTAAs. We have heard this from them many times over? ASICs recent guidance was both clear and specific (a welcome change for ASIC) and has been made public and in writing. FTAAs are efficient, and 100% meet the requirement of free, prior, and informed consent. A strong argument can be mounted that FTAAs which have zero grace days provide more not less consumer protection. Our profession needs greater clarity and simplicity, and it does not need product houses and their representatives muddying the waters. These comments serve no purpose as far as I can see and I would ask that the industry and media stop giving a platform to such comments.

Yep. While I have a lot of respect for Bryan I don't know what he is trying to get at here. Fixed term agreements were never a way to avoid annual opt-in. They are a way to reduce the compliance costs of Fee Disclosure Statements and work by giving the client a higher level of protection (fees must be turned off on day 1 after the initial agreement expires). Basic contract laws protect clients from fees for no service issues.

Remember the cost of an FDS is not solely in producing the document. It is the potential remediation costs if you get it wrong, or potentially misinterpret a rule which 10 years later is clarified by the regulator.

Richard, you may be right but in my humble opinion if your FTAA is the same year in tear out I would argue that it looks like a ongoing service agreement which is where BT see the issue with the CoE.

Yep agree, if its the same year in and year out; how is it not an ongoing service agreement? If it is called an FTAA then how does this comply with FASEA standard 1? Moreover, I do not agree that clients have more protection with an FTAA as they cannot cancel it within the period; an ongoing service agreement can be cancelled by either party at any time. Just my 5 cents.

Sorry Anon but the client may cancel the FTAA at any time by providing 30 days notice so that point is covered, and with zero grace days many compliance and legal minds argue that consumers get more not less protection under a FTAA. The position that the FTAA is attempting to circumvent the OSA rules is always based on the "assumption" that the agreement won't change from year to year, as well as the "assumption" that the driving purpose is to avoid legal obligations - both assumptions are flawed and can be demonstrated to be wrong in practice. As B commented earlier FTAAs deliver modest efficiency gains to our practice and this is very consistent with the "efficiently, honestly, and fairly" requirements in the Corps Act. I would also point out we have been regularly advised to view the CoE in their entirety and not each standard in isolation. Accordingly, we should give equal weighting to the "free, prior, and informed consent" of standard 7 as we should to standard 1. ASIC clearly don't have concerns that FTAAs (delivered professionally) fail the CoE based on their most recent and very explicit guidance.

The ASIC Guidelines on Ongoing Fee Arrangements states very clearly that instalment agreements under 962A(3) are NOT ongoing fees. When you read all of 962A(3), it says NOTHING about 12 month term maximums. It simply states a fixed total amount & a fixed instalment amount. It does not state any term. Obviously "ongoing variable" fees are captured under the Hayne2 legislation, but it is important to note that Non-Ongoing fees are NOT Ongoing Fees. The retail super fund Trustees are interpreting this incorrectly. And isn't that convenient for their inhouse salaried super fund advisers??? It is fascinating that Bryan Ashenden has always been deathly silent about intra-fund "advice" fees that are being charged ongoing (for up to 40 years), without informed consent & without opt ins. Funny that.

Not to mention there is nothing stopping you financing your client's (fixed agreed total) fees under a separate Credit Licence, at Nil interest rate, & the client paying their fees off by instalments (over 12 months) as well. Assuming you have a Credit Licence. Which simply shows how ridiculous the 12 month maximum term (for fixed amounts) truly is. If you banned this, you would be able to sue for restraint of trade.

Again a reference to the 'ASIC Guidance' as a source of truth. I think the legislation needs to be looked at and how it describes what isn't an Ongoing Fee, including that it is, in my interpretation, after the advice has been provided as well as not being able to be turned off. In effect, I think it is meant to be akin to 'Afterpay' http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s962a.html

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