Fee disclosure statements

Transcription

1 INFORMATION SHEET XXX Fee disclosure statements This information sheet provides concise guidance for Australian financial services (AFS) licensees and their representatives on how to comply with the fee disclosure requirements in Div 3 of Pt 7.7A of the Corporations Act 2001 (Corporations Act). These requirements apply to AFS licensees and their representatives who earn ongoing fees from retail clients who receive personal advice. This information sheet explains: what are the fee disclosure requirements and when they apply who must give a fee disclosure statement (i.e. who is a fee recipient?) what circumstances give rise to the obligation to give a fee disclosure statement (i.e. when does an ongoing fee arrangement exist?) what information must be disclosed in the fee disclosure statement, including how it should be presented and whether commissions should be disclosed when a fee disclosure statement needs to be given, including what is the disclosure day and how this day can be reset to streamline the timing of disclosure, and what is ASIC s approach to compliance with the FOFA provisions. We have published this information sheet due to requests for guidance on these topics from industry participants. If necessary, we will add further topics as we receive further comments or questions from industry. You can contact us with your feedback at fofa@asic.gov.au. What are the fee disclosure requirements? The fee disclosure requirements in Div 3 of Pt 7.7A of the Corporations Act were introduced as part of the Future of Financial Advice (FOFA) provisions under the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (FOFA Act No. 2) Under Div 3 of Pt 7.7A, fee recipients must give retail clients a fee disclosure statement, which discloses information about the previous 12 months of their ongoing fee arrangement. An ongoing fee arrangement exists where a retail client is being charged an ongoing fee for a period of more than 12 months. These requirements apply to: new clients (i.e. persons who enter into an ongoing fee arrangement after the requirements apply and who have not been provided with personal advice as a client before this time); and existing clients (i.e. persons who have received personal advice as a client from an adviser before the requirements apply and who enter into an ongoing fee arrangement with that advice provider, either before or after that time). Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Page 1 of 5

2 Note: In this information sheet, references to: sections (s), parts (Pts) and chapters (Chs) are to the Corporations Act, unless otherwise specified, and regulations are to the Corporations Regulations 2001 (Corporations Regulations) client mean retail client as defined in s761g of the Corporations Act and Div 2 of Pt 7.1 of Ch 7 of the Corporations Regulations, and advice or personal advice mean financial product advice given or directed to a client (including by electronic means) in circumstances where the person giving the advice has considered one or more of the client s objectives, financial situation and needs, or a reasonable person might expect the person giving the advice to have considered one or more of these matters (s766b(3)). When do the requirements apply? The FOFA Act No 2 commenced on 1 July All AFS licensees and their representatives must comply with the requirements in Pt 7.7A (including the fee disclosure requirements) from 1 July However, licensees can elect to comply with the FOFA provisions before 1 July 2013 by notifying ASIC under s967: see Form FS92 Notification of intention to comply with Future of Financial Advice provisions. This means that the fee disclosure requirements apply to all advice providers from 1 July 2013, unless an AFS licensee elects to comply with the FOFA provisions before this date, in which case the fee disclosure requirement apply from that date. Who must give a fee disclosure statement? A fee disclosure statement must be provided by the fee recipient. A fee recipient is the person (AFS licensee or representative) who enters into the ongoing fee arrangement with the client, or their assignee under an assignment of the licensee or representative s client book: see s962c. A representative of an AFS licensee includes an authorised representative of the licensee, an employee or director of the licensee, or an employee or director of a related body corporate of the licensee. When does the obligation to give a fee disclosure statement arise? The obligation to give a fee disclosure statement only arises if an ongoing fee arrangement exists. An ongoing fee arrangement exists where a client receives personal advice, and the client enters into an arrangement with the fee recipient, the terms of which provide for the payment of a fee during a period of more than 12 months. For the purposes of the definition of ongoing fee arrangement, a fee is any fee (however described or structured) that is paid under the terms of the ongoing fee arrangement between the AFS licensee or representative. As stated in the Replacement Explanatory Memorandum (at paragraph 1.18), the intent is to capture those ongoing fee arrangements where ongoing fees are charged by the fee recipient for personal advice (including where the client is paying ongoing fees despite not actually receiving ongoing advice). This includes fee-forservice and all other fees related to the service, such as administration fees. An arrangement under which a client receives unrelated separate pieces of scaled advice does not necessarily constitute an ongoing fee arrangement, even where the client uses the same adviser over a period longer than 12 months. Whether there is an ongoing fee arrangement depends on whether the client enters into an arrangement with the advice provider, which provides for the payment of a fee during a period of more than 12 months. The following are not ongoing fee arrangements: a payment plan meeting prescribed requirements (e.g. involving a fixed fee) (this is excluded under s962a(3)) an arrangement under which the only fee payable is an insurance premium (this is excluded under s962a(4)), and an arrangement to the extent that the fee payable is a product fee (this is excluded under s962a(5) and reg 7.7A.10). Page 2 of 5

3 What information must be disclosed? The content of the fee disclosure statement is the same for new and existing clients. For the purposes of Div 3 of Pt 7.7A, a fee disclosure statement is a statement in writing that includes information related to the previous 12-month period of an ongoing fee arrangement: s962h. That 12-month period must end no more than 30 days before the statement is given to the client. The following information must be included in the fee disclosure statement: the amount of each ongoing fee paid by the client in the previous year (an ongoing fee is any fee payable under an ongoing fee arrangement: see s962b) information about the services that the client was entitled to receive in the previous year (including from any previous licensee or representative under the client s ongoing fee arrangement), and information about the services that the client received in the previous year (including from any previous AFS licensee or representative under the client s ongoing fee arrangement). Note: Information about services provided by a previous AFS licensee or representative is required where the services were provided under the same ongoing fee arrangement. This may arise in relation to a commercial assignment or transfer of a licensee s or representative s client book. How should the information be presented? The Corporations Act does not prescribe the level of detail required in a fee disclosure statement. You will need to determine the level of detail, including how services and fees should be described and presented in the statement. You should be careful to comply with the general obligations in the Corporations Act and the Australian Securities and Investments Commission Act 2001 (ASIC Act). In particular, you should comply with the provisions that deal with misleading or deceptive conduct and false or misleading representations. You will need to decide how you describe the services actually provided under the ongoing fee arrangement. For example, you could describe whether a client received personal advice on a particular topic or whether they received a standardised brochure on that topic. To ensure that you do not mislead the client, you will need to clearly distinguish between the services actually provided and the services that the client was entitled to receive. The legislation does not prohibit the inclusion of additional information in the fee disclosure statement. However, additional information should generally be kept separate from the prescribed information to ensure that the additional information does not affect the client s ability to determine whether the services they are receiving is commensurate to the ongoing fees they are paying. For example, any information included about future services (additional information) should be clearly separate from information about services provided or services that the client was entitled to receive over the previous 12 months (prescribed information). It may be helpful to use clear headings. We consider that the policy intent is that the fee disclosure statement should be consumer friendly, concise and easy to read. The purpose of the statement is to help your clients work out what services they are paying for and how much those services cost to facilitate an informed decision about whether the arrangement should continue. Should commissions be disclosed? Industry has asked for guidance about whether a commission arrangement is an ongoing fee for the purposes of meeting the fee disclosure requirements. Note: Commissions are generally banned under the conflicted remuneration provisions in Pt 7.7A unless they are grandfathered arrangements that is, arrangements entered into before the application day under s1528(1) or explicitly permitted (e.g. under s963b or 963C). These provisions also do not apply to benefits, including commissions, to the extent that they would result in an acquisition of property otherwise than on just terms. The conflicted remuneration provisions in Pt 7.7A apply to arrangements entered into on or after 1 July 2013 (unless an AFS licensee elects to comply with the FOFA provisions before that date). Page 3 of 5

4 The Replacement Explanatory Memorandum (at paragraph 1.13) notes that an ongoing fee paid by a third party to an advice provider (which would include a commission) will generally not constitute an ongoing fee for the purposes of s962a(1)(c) and 962A(2)(c), unless the fee is paid with the clear consent of or at the direction of the client. We therefore consider that commissions generally do not need to be disclosed in the fee disclosure statement. However, you should consider whether any commission or hybrid fee arrangements were entered into with the clear consent of or at the direction of the client and therefore need to be disclosed. Further, if it is too difficult to separate out hybrid or bundled fee arrangements, we consider you should disclose all of the bundled or hybrid fees. If commissions are not disclosed, you should be careful to ensure that the wording of the fee disclosure statement does not mislead clients by implying or suggesting that the fees disclosed are the only payments received by the fee recipient for the advice given to the client. When does a fee disclosure statement need to be given? You must provide retail clients with a fee disclosure statement before the end of a period of 30 days beginning on the disclosure day. Therefore, each client with whom you have an ongoing fee arrangement must be given a fee disclosure statement within 30 days of the first disclosure day after the fee disclosure requirements apply to you, and every year thereafter until the ongoing fee arrangement is terminated. What is the disclosure day? Section 962J defines disclosure day for the purposes of Pt 7.7A. The rules for identifying the disclosure day are the same for new and existing clients: On the first occasion a fee disclosure statement is given to a client, the disclosure day will be the anniversary of the date that the arrangement was entered into. On all subsequent occasions, the disclosure day is the anniversary of the day immediately after the day the previous fee disclosure statement was given to the client. You should consider the following factors in determining the day that the arrangement was entered into: If an arrangement has been varied, it may become a new ongoing fee arrangement, and the disclosure day for the new arrangement will then be the anniversary of the day that the new arrangement was entered into. If a new arrangement terminated an earlier arrangement, the disclosure day will be the anniversary of the date the new arrangement was entered into. If there are two or more separate ongoing fee arrangements, the disclosure obligations will apply to each ongoing fee arrangement separately. For existing clients who have received personal advice, you will need to determine (e.g. by reviewing client files), when you first became entitled to earn fees under the terms of the ongoing fee arrangement. Depending on the circumstances, this may, for example, be the date an authority to proceed was signed or a product was acquired by the client. Note: Under s1101c, the financial records that an AFS licensee is required to keep under s988a must generally be kept for seven years after the transactions covered by the record. Other records required by Ch 7 must be kept for five years after the day on which the last entry was made in the record. We expect you to document the approach taken to identify the date that arrangements were entered into and apply the approach consistently across your client book. Where it is difficult to identify the actual date that the arrangement was entered into, we expect you to take a common sense approach, or you may wish to take a streamlined approach and simply issue fee disclosure statements to all existing clients on 1 July 2013, thereby resetting the disclosure day as explained below. Page 4 of 5

5 Resetting the disclosure day to streamline the timing of disclosure There is some flexibility in how and when you can provide fee disclosure statements to clients. After the fee disclosure requirements apply to you, you can meet your disclosure obligations ahead of time, if it is convenient to do so. For example, after giving your clients their first fee disclosure statement, you can give them the next fee disclosure statement on another date before the subsequent anniversary date to reset the disclosure and renewal date for clients to another time of year that better suits your business needs. Example To streamline its disclosure arrangements, XYZ Financials gives: all existing clients a fee disclosure statement on 1 July 2013, thereby resetting the disclosure day for these clients, and all clients a fee disclosure statement on 1 July for each subsequent year, thereby providing disclosure within 30 days of the disclosure day for existing clients and resetting the disclosure day for all new clients. XYZ Financials has met its obligation to provide fee disclosure statements and the disclosure day for all of XYZ Financials clients is now reset to 1 July. Note: You can only reset the disclosure date for existing clients before 1 July 2013 if you elect to comply with the FOFA provisions before that date: see When do the requirements apply?. What is ASIC s approach to compliance? We will take a facilitative approach to compliance with the FOFA provisions (including the fee disclosure statement requirements) until 1 July That is, provided you are making reasonable efforts to comply with your disclosure obligations, we will adopt a measured approach where inadvertent breaches arise or systems changes are underway. However, where we find deliberate and systemic breaches we will take stronger regulatory action. Where can I get more information? For more information on how the FOFA provisions apply, see Regulatory Guide 175 Licensing: Financial product advisers Conduct and disclosure (RG 175). Go to to download copies of RG 175 and Form FS92 Notification of intention to comply with Future of Financial Advice provisions. Contact ASIC on Important notice Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you. Page 5 of 5