Breakthrough acknowledgement on FDS arrangements

The Government will be almost compelled to change the arrangements for annual client renewals to address what would represent almost an impossibility for financial advisers, according to the Association of Financial Advisers (AFA).

AFA acting chief executive, Phil Anderson is arguing that as the legislative and regulatory arrangements currently stand, advisers might literally have only one day to provide a fee disclosure statement (FDS) – something which is virtually impossible.

What is more, the AFA has had its understanding of the situation confirmed by the Australian Securities and Investments Commission (ASIC) and Treasury.

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“We have been very adamant that it is simply not possible to provide an FDS in one day and have equally been clear that it is inappropriate to take the risk, as any breach in terms of the content of an FDS or getting the amount wrong would result in the Ongoing Fee Arrangement being terminated,” Anderson has said in a message to members.

“Some of the obvious reasons for why this is impossible are as follows:

  • There is often a delay in fees being processed into the remuneration systems;
  • It is not possible to precisely predict in advance the amount for asset-based fee clients;
  • FDSs are important disclosure documents and should be subject to careful checking;
  • ASIC expect advisers to manually check FDS amounts against product systems (ASIC Report 636);
  • Advice businesses like to do FDSs in batches and, putting aside everything else, this would make it impossible to check them all in the time available; and
  • Importantly this is the first year where the services and the fees for the next 12 months must be included in the FDS, and this will be extra complicated for asset-based fee clients, where you need to prepare an estimate and explain the basis of the estimate.

“Since we became aware of this potential issue, we have engaged with ASIC and Treasury to ascertain whether our understanding was correct. Once it was confirmed that we were correct, we have then proceeded to raise this issue with the Government and to submit a request to ASIC that they take a facilitative compliance approach during the transition year.  We did this letter jointly with the FPA.

“It is important to understand that ASIC does not have the powers to provide relief.  They can only take a facilitative compliance approach, where they would agree not to take any regulatory action where breaches occur.  An ASIC no action position or facilitative compliance approach would not stop ongoing fee arrangements from being automatically terminating if you breach the FDS requirements. This also does not prevent other parties from taking action.  Ultimately this issue can only be solved by legislative change, however this is unlikely in the time left before commencement on 1 July, 2021.”

Anderson said the AFA would continue to work with ASIC and the Government on finding a workable solution, with ASIC currently working on guidance for advisers which would be released as soon as possible.




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Comments

Comments

Wow the FDS Platform complete layer of AFSL compliance & costs is going well hey LNP, HUME, Frydenberg.
It hasn't even started and it's well and truly a Disaster.
5 weeks out and ASIC are getting guidance prepared. Great job ASIC.
LNP, Hume & Frydenberg have to GO - They have proven they will do anything and everyhting to Kill Advisers.
Time for Advisers and our clients to help kick them out.

Honestly, what did you think would happen after the testimony we heard at the RC?
This is the comeuppance. Regulation into near oblivion.
I don't like any of it either. Good Advisers (and their clients effectively) being punished for the entitled and incompetent behaviour in the past of "wealth leaders".
The only real question now for Advisers is: Can we survive all this and come out the other side better as an Industry and better as professionals? Hang in there.

Neither Labor nor Liberal have gotten any of the legislation right. It has all resulted in unintended consequences and an industry in crisis! So much for wanting Australians to have a more secure future and not rely on the public purse so much.

What an absolute joke Jane Hume telling us we welcome these changes.
Every account a separate form. Different forms for different providers. No agreed upon one universal format that advisers can use that satisfied ASIC / licensees and provide to all product providers for all clients accounts.
Meanwhile ASIC yet to finalise guidance, licensees trying to work out their systems/processes and product providers coming up with process & forms that suit them.
What about the client in all this and the adviser trying to sort through this mess.
The FPA / AFS / Licensees and advisers all need to push back and delay start for 6 to 12 months so concise industry wide acceptable format is arrived at rather than this mess of licensee FDS and a different product provider form for every single account held.

The solution is to move to fixed term agreed ongoing monthly fee arrangements, for a maximum period of 5 years, for regular fund members, where the ongoing service support fee they are charged is less than $1,200 pa. The "annual" aspect is irrelevant to opt-in. What is relevant is the informed consent. In the meantime, hundred of millions in ongoing intra-fund advice fees are being charged to default super fund members, without any informed consent & without any form of opt-in. With intra-fund fees, members could be paying advice fees for over 40 years, & never receive any service whatsoever. This is a racket, hence this massive inconsistency needs cleaning up.

ASIC have already stated that any arrangement seen to subvert the FDS regime will likely be non compliant. Your solution sounds like it may come under attack, especially since you've named 5 years i.e. it sounds like an OFA. I don't understand the $1,200 limit? Is there some sort of cap. At any rate how do you service a client for that.

For $1200 the service description is "Provision of annual FDS, OPT in, FSG updates and associated administrative costs". All other services and needs are out of scope. ASIC would then be happy as we were 'compliant'.

Actually, the Corporation Act clarifies that Paying for advice by instalments is NOT an OFA. So what I am suggesting is quite feasible under the Corps Act.

(3) Despite subsections (1) and (2), 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.

http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s962a.html

Why argue about ASIC and the government's hidden agenda? Accept the solution is to charge $4000 minimum fees per year and get rid of any B,C and D clients. I simply inform clients that with the changes to regulations this is the new fee structure, and refer them to the local member.

you beauty, that's exactly what I have done, except it's ASIC Danielle press, and peter kell from the choice and who is now working for Westpac that I tell the clients to call

the agenda is to have union fund ponzi have it all, always has been

How the hell did it all get to this?
How many more bureaucratic interference is needed - every time they get involved in something its a f**k-up?
Didn't Hume say that people need to be allowed to make their own decisions about getting involved with influencers peddling advice on social media just the other day - translation: "people should take responsibility for their own actions". What's the difference with this?
The whole fee discussion should be based around an agreed anniversary date, and simply an opt-out with 30-days notice - what's hard about that?
Do the public servants get bonuses or pay increases based on how much they can increase the complications of anything they touch or something?

It's easy to understand if you understand a public service mindset.

1. The only output from the public service can do and understand is red tape and paperwork.

2. More paperwork = higher productivity.

3. More productivity = stressed public servants.

4. Stressed public servants = more public servants.

5. More public servants = more paperwork and red tape.....(return to 1.)

They are doing us all a favour by increasing productivity and boosting the economy. Bahahaha

Did HUME wake up for 22 seconds, oh hang on that was 4 the womans getting bashed portfolio

The other disaster is the inability to bring forward the consent if you meet with a client any earlier than 365 days after their previous anniversary date. What a complete farce. Advisers are now incentivised to delay meetings and give less service. What a complete shambles

must be the only profession required to spend a few hours to '' accurately' predict the next 12 months fees it might charge to a client.

Consider this - financial planners are the only profession (?) that charges retail clients an ongoing fee.

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