ASIC’s Regulatory Guideline 245 dated March 2013 deals with fee disclosure statements (FDS). It can be accessed here: ASIC Regulatory Guideline 245.
FDSs were introduced as part of the 2013 FOFA reforms. Their purpose is to allow clients to assess if they are receiving services commensurate with their on-going fees.
An annual FDS must be sent to every client with whom an adviser has an “on-going fee arrangement”.
Advisers are responsible for FDS
Advisers are responsible for providing FDSs to clients, not Dover. However, Dover’s obligation to run an effective and efficient AFSL means Dover must monitor compliance with the FDS rules (see RG 245.18).
What has to be in a FDS?
Section 962H of the Corporations Act deals with FDS. It requires the FDS to detail the:
- fees paid under an on-going fee arrangement
- services the client was entitled to receive and
- services actually provided to the client
in “the previous year”, which can be any 12 month period but will usually be the year ended 30 June.
What is an on-going fee arrangement?
An ongoing fee arrangement is one where the client has to pay a fee to the adviser, other than a product fee, for work done over a period of more than 12 months.
(A product fee is a fee charged by a product issuer for managing a financial product, such as commission.)
What if you do not have any “on-going fee arrangements”?
If you do not have an “on-going fee arrangement” with your client you do not have to provide a FDS to your client. Examples include:
- advisers who only receive commissions
- advisers who charge on a time spent basis for actual work performed (even if there are numerous unrelated tasks over a period of more than 12 months: RG 245.25)
- one off fees paid in instalments and
- arrangements that only involve paying an insurance premium (RG 245.26).
It is possible an adviser will not have any “on-going fee arrangements” and will not be required to provide and FDS to any clients.
Form of delivery
FDS must be in writing and provided to the client. ASIC says this includes delivery by hand, mail, fax or e-mail.
Marketing implications of FDS
Dover recommends advisers consider the marketing implications of how the FDS is delivered to their clients. Consider how the client will read the FDS, and make sure it is received positively.
Sue Viskovic from Elixir Consulting explains the marketing implications of FDS here: Why you should not post your FDS on 1 July.
Jenny Brown, the 2013 AFS adviser of the year provides her tips for making the FDS process as positive as possible: Tips to turn your FDS into a must have marketing tool.
RG 245 sets out special rules for determining disclosure day. The simplest option is to:
- assume all clients must receive a FDS (even those who have been clients for less than a full year)
- treat the previous year as ending on 30 June this year and
- make sure all clients get a FDS by 31 July this year.
Dover strongly encourages all advisers to treat the previous year as the year ending on 30 June and to make sure all clients receive their FDS by 31 July each year.
What if you are not sure a FDS is needed?
“If in doubt disclose” is the golden rule. Or contact MLA Lawyers for specific advice.