There are certain obligations financial advisers are bound by when providing ongoing services. This may include the obligation to provide a fee disclosure statement. These statements can be incredibly useful for recipients of financial advice, as they can help you as a client understand whether the services you are receiving are proportionate to the ongoing fees being paid, and vice versa. That is, a fee disclosure statement can provide you with an indication of your position in the context of receiving financial advice. It will also help you decide whether this arrangement should continue.
As of the 1st of July 2013, all Australian Financial Services Licensees who enter into or have entered into ongoing fee arrangements with retail clients must provide a fee disclosure statement to those clients. An ongoing fee arrangement will be deemed to exist when a client is given advice and enters into an arrangement with the financial adviser whereby the client is charged an ongoing fee. (see section 962A) The obligations related to fee disclosure statements are provided in part 7.7A division 3 of the Corporations Act 2001 (Cth) and were introduced by the Corporations Amendment (Future of Financial Advice Measures) Act 2012 (Cth). The Act defines a fee disclosure statement in section 962H. The main features of this written statement, as per subsection 2, include:
– The amount of each ongoing fee paid under the arrangement by the client in the previous year;
– Information about the services that the client was entitled to receive from the current and any previous fee recipient under the arrangement during the previous year;
– Information about the services that the client received under the arrangement during the previous year;and
– Information about any other prescribed matters, including information that relates to a period that begins after the previous year.
These statements are provided each year, detailing information from the previous 12 months. It is important to understand which arrangements are not defined as ongoing fee arrangements, as this will indicate whether you are entitled to a fee disclosure statement. Arrangements that are not defined as ongoing fee arrangements include a payment plan excluded under section 962A(3) (such as an upfront advice fee paid in instalments), an agreement whereby the only fee payable is an insurance premium (see section 962A(4)), or an arrangement whereby the fee payable is a product fee (see section 962A(5)). These points are more comprehensively articulated in ASIC Regulation Guide 245 – Fee Disclosure Statements.
The obligation to provide a fee disclosure statement exists in addition to other fee and remuneration disclosure obligations. These obligations include, but are not limited to the provision of a Statement of Advice (where personal advice is given), complying with the renewal notice and opt-in requirements, and the provision of a Financial Services Guide. For more details on Financial Services Guide, please see our article entitled Financial Services Guides and the Complaints Process.
There are several legally enforceable obligations involved in the provision of financial advice. The provision of a fee disclosure statement may be a key duty, depending on the relationship or arrangement who you have with your financial adviser.
This article was authorised by Warwick Heeson.