No relief for ongoing fee arrangements: ASIC

The corporate regulator does not have any powers to provide relief from the ongoing fee arrangement obligations (OFAs).

The Australian Securities and Investments Commission (ASIC) has released its guidance on OFAs to give financial advisers and advice licensees greater clarity when providing personal advice to retail clients.

The obligations would come into place on 1 July, 2021, and ASIC said it did not have any exemption and modification powers to provide relief from the OFA obligations.

In regards to the fee disclosure statements (FDS) for an existing ongoing fee arrangement during the transition period between 1 July, 2021, and 30 June, 2022, ASIC said clients must be given an FDS between the transition period.

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“An FDS provided during the transition period must cover information for:

• the previous year – a 12-month period that ends just before the transition day for the ongoing fee arrangement (see Question 21), and
• the upcoming year – a 12-month period that begins on the transition day for the arrangement: see section 1673C(4),” it said.

For existing obligations, ASIC said: “There will be circumstances where your obligation to provide an FDS and/or renewal notice is triggered, but not discharged, before the new ongoing fee arrangement reforms commence on 1 July 2021. This is because the 60-day period you have to give the client an FDS and/or renewal notice under the previous law ends on or after 1 July 2021”.

“In these circumstances, you will only need to give your client one FDS during the transition period,” it said.

ASIC noted there was no flexibility in the law in relation to the transitional arrangements.

“ASIC does not have any powers to modify the period of information that must be covered in a transition FDS or make exemptions in relation to the transitional arrangements,” it said.

The guidance covered ongoing fee arrangements, fee disclosure statements, and ongoing fee consents and had clarified fixed-term arrangements.

It said that there were a range of factors that would be considered when determining whether a fixed-term arrangement was ongoing on not.

These factors included:

• 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.