Should ASIC allow advisers flexibility on 12-month opt-in?

10 December 2019

Some flexibility and the possibility of a grace period have been canvassed as a means of the regulators assisting financial advisers in dealing with the proposed new 12-month renewal regime and fee disclosure statements (FDSs).

The Association of Financial Advisers (AFA) is later this week expected to issue a position paper on the new environment in circumstances where AMP Limited late last week announced it would be moving early to annual advice agreements, and where confusion exists amongst some advisers about ongoing fee arrangements.

Commenting on the issue, the AFA’s general manager of policy and professionalism, Phil Anderson, said that a lot of issues had arisen around the definition of ongoing fees and the reality that such arrangements could not be rigidly confined to 12 months.

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He said that it was in these circumstances that the AFA had been examining the situation and examining whether it was feasible to inject more flexibility into renewal arrangements including, perhaps, a grace period.

Anderson said he believed the regulators needed to recognise the need for flexibility in circumstances where advisers were not always directly in control of how and when client fees were deducted from client accounts.

He said there might be merit in reviewing the origins of client opt-in and the original proposals contained in the Future of Financial Advice (FOFA) regime when the former Labor Government had originally proposed 12 monthly arrangements but moved to two-yearly on the basis of annual FDSs.

Anderson said there might be merit in returning to the original arrangement of an annual opt-in but no requirement for an annual FDS.

The AFA’s examination of the issue has come at the same time as advisers query major licensees on their options in dealing with the regime, including options for initial up-front advice fees and client repayment plans.

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I'm curious to know how 12 month agreements (as opposed to annual Opt-in) can work in conjunction with fee payment from platform.
- What sort of documentation do platforms typically need to implement this?
- If there's a new fee authorisation document every 12 months can the platforms record it as ongoing fee rather than one off fee in their annual tax statements for tax deductibility purposes?
- Can platforms backdate implementation of an ongoing fee deduction if for example the client signs an annual fee deduction for the period Jul-Jun but doesn't sign and return it until Sep?

1) A signed fee deduction form and an email will usually suffice, but most don’t have the technology to turn it off after 12 months, the onus is on you.
2) I’d suggest that depends on the name of the fee being applied
3) Unlikely, that would once again fall into the adviser’s lap.

I worked in the platform / insto space before starting out on my own, I know that they are taking APRA‘s stance on super trustee responsibility very seriously and will do anything to save their backsides.

Have i missed something. If you have a 12 month agreement, then it runs for 12 months and then a new agreement starts.Why do we even need annual opt-in in this scenario?

Exactly. If the agreement does not run longer than 12 months then you don't need to worry about optin or provide an fds.

No, this is incorrect... You have to provide an FDS. An FDS shows what they paid for the year and what services were provided and if anything was missed what they are entitled to as a refund.

One thing is for sure. The red tape involved with this mess (that the Union Super fund intra-fund advisers giving personal advice don't have to contend with) is ridiculous. There is too much focus on what is being paid & not enough on what is being achieved. More so for smaller clients that just don't need "annual reviews".

The ridiculous assertion in relation to value of fees charged is that ASIC and the FASEA COE will drive home that a documented annual review of a clients circumstances is absolutely necessary to justify the fee charged when in reality an ongoing ASF can cover such a diverse range of service and smaller contact points and ad hoc advice throughout the year .
Unfortunately there are very common examples where an adviser may log into client accounts on a regular basis to ascertain if the current asset allocation is moving away from the client risk profile or if a fund manager has been replaced, or simply to gain a snapshot of where the clients account is being affected positively or negatively by market movements etc. This overseeing of a clients business on a regular basis may not be communicated to the client or formally documented every time the adviser is logged on to client account data, and therefore is at risk of being ignored as an integral part of the annual fees and costs.
Other client services will include determining expiry dates of Nomination of Beneficiary and notifying or following up the client to renew etc and even down to changing contact or address details for clients who rely solely on their adviser to manage their administration matters entirely.
These types of additional services and "overseeing" roles all contribute to the formation of what the client deems to be of value to them for having someone looking after their affairs without them having to concern themselves on a regular basis.
The issue is the regulator seems to assess that if you complete an annual review with the client for 2 hours then that is the main formation of the basis of the ASF for the year and nothing could be further from the reality of what advisers do every single day of the year.
Consumers are very often content to pay a fee for the year to ensure that whatever needs to be done and discussed throughout that period they have the services, contact and availability of someone to assist them and to provide advice relevant to their needs.
In some instances it is incredibly regular whilst in others it may be sporadic.
The determination of " value " is subjective and varies from client to client.
Whilst the delivery of service and advice in relation to cost of delivery will never be consistently acceptable across a broad range of clients, I believe the vast majority of quality advisers are paid to be a person of trust,competency and efficiency and to also demonstrate a genuine and engaged interest in their client's position and life.
It is simply not just about delivering compliance documents and reviews by which to justify the annual fee charged.

I get where you are coming from. However, if it is not documented then it is hard to protect yourself and you may be forced to pay back fees in the future. This is the new world we live in.
I would just incorporate all the things you have stated into an annual review. Let the asset allocation ride throughout the year, and check if any binding noms are expiring in the next year. You may only need to do an RoA.

This is a great post, highlighting one of the biggest problems that has come from the 'fees for no service' debacle brought on us by the banks and AMP.

Why can't a client choose to keep an Adviser on what is effectively a retainer? Lawyers do it, Accountants do it. To say that no service has been provided unless a face to face meeting has occurred and either an SOA or ROA generated is ridiculous. Not to mention there is nothing in the Corps Act that prevents a person charging for general advice, personal advice, time spend in meetings, time spent doing whatever the hell the client is prepared to pay for.

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