Not using whole dollar disclosure when disclosing fees and costs

This is a mistake that used to be more common, but which still happens from time to time. RG 175, and more precisely RG 182 both state a version of the following:

RG 182.1 The dollar disclosure provisions require various costs, fees, charges, expenses, benefits and interests to be stated as amounts in dollars in SOAs, PDSs and periodic statements (including exit statements), except where we have provided relief. Note: The dollar disclosure provisions commenced on 1 January 2005.

RG 182.2 The dollar disclosure provisions are designed to help consumers better understand information about costs, fees, charges, expenses, benefits and interests by expressly requiring certain information to be presented in dollar terms.

As RG 182 makes clear, your fees must be stated in whole dollars. Most particularly, they cannot be expressed in percentage terms. While you may calculate your fee using some form of percentage, this is basically ‘for internal purposes only.’ By the time that you come to be stating the amount payable in the SOA, you need to state the fee in the actual dollar amount that will be charged.

Similarly, the fees must be stated with precision. You cannot simply state a range of fees (and then later bill the upper limit of the range). Nor can you merely estimate the fee. If the amount of the cost is for some reason not clear at the time of writing the SOA, then you need to state a precise figure that is the maximum cost that the client may incur. Here is an example of an SOA that does this well:

Investment option name Amount invested Inv Fee % Inv Fee $pa
BT Wholesale Monthly Income Plus Fund $70,000 0.65% $455
Australian Ethical Australian Shares Fund $30,000 2.50% $750
Vanguard Balanced Index Fund $100,000 0.36% $360
Totals $200,000 0.78% $1,565

In this case, the client is being told to expect a fee of $1,565. The basic idea with the disclosure of fees and costs is that the client never gets a surprise – and especially not an unhappy surprise – when it comes to fees and costs. This is what the law requires. But, of course, it is also a really good principle for any business to apply. Unhappy surprises make for unhappy clients, which makes for negative word of mouth, complaints and other unwanted consequences for the adviser.

Therefore, when considering whether and how you have told your client about the costs that they will incur from following your advice, makes absolutely sure that the client knows what these costs will be before any action is taken. And the best way to do this is to follow the rules for dollar disclosure as laid out in RG 175 and RG 182.

The Dover Group