In response to fee for no service issues and to assist clients to determine whether they are deriving benefits from ongoing fee arrangements, legislation contained in the Financial Sector Reform (Hayne Royal Commission Response No. 2) Act 2021 became effective on 1 July 2021. This implements Banking Royal Commission Recommendations 2.1 (Annual renewal and payment), in addition to 3.3 (Limitations on deducting advice fees from choice accounts).
These requirements apply to all clients, including those clients who implemented ongoing fee arrangements after 1 July 2013.
Ongoing fee arrangement
The ongoing fee arrangement must record in writing the services that the client is entitled to receive and total fees to be charged. A client must renew the ongoing fee arrangement in writing and within the prescribed renewal period (120 days from the anniversary date).
Fee disclosure statements (FDS)
FDSs must be provided to clients no later than 60 days after the anniversary day of the ongoing fee arrangement each year.
The FDS must contain the following information about the client’s ongoing fee arrangement:
- the amount of each ongoing fee paid by the client under the arrangement in the previous year
- the amount of each ongoing fee the client will be required to pay under the arrangement during the upcoming year
- the services that the client received, and was entitled to receive, under the arrangement during the previous year (including from any previous fee recipient under the client’s arrangement)
- the services the client will be entitled to receive under the arrangement during the upcoming year
- the ongoing fees the client will pay after the end of the upcoming year, but for services they are entitled to receive during the upcoming year, and
- how to renew the arrangement.
Ongoing fee consent
Planners who have an ongoing fee arrangement with a client must provide an annual Fee Disclosure Statement, an annual renewal notice (opt-in), and annually seek the client’s consent to deduct advice fees.
Clients must provide their express, written annual consent to deduct fees before the planner can accept payment of such fees. This may be achieved by signing the ongoing fee agreement (if used) and the fee collection consent authorisation (not the FDS).
Planners must stop deducting or accepting the payment of ongoing fees from the client’s account if the client’s written consent has:
- been withdrawn
- been varied in any way that does not allow for the deduction to be made from the account, or
- ceased to have effect because the consent has expired or been withdrawn, or the ongoing fee arrangement has terminated.
Civil penalties apply for failure to provide an FDS; the obligation not to deduct, or arrange to deduct, ongoing fees without the client’s written consent and also where the fee recipient continues to charge ongoing fees after termination of the ongoing fee arrangement.
Transitional arrangements
Regulations on transitional arrangements are available to arrangements that were entered into prior to 1 July 2021, which will generally need to comply with the new rules from 1 July 2022. Transitional measures allow a FDS given to client during the transition period to include a reasonable estimate of the amount of any ongoing fees paid, and services expected to be provided for the 60 day period immediately before the FDS is provided, rather than the exact amount (if it’s not available).
Guidance and resources
Guidance and resources
- FPA members:
- ASIC Corporations (Consent to Deductions – Ongoing Fee Arrangements) Instrument 2021/124) and Explanatory Statement
- ASIC Information Sheet 256 FAQs: Ongoing fee arrangements (INFO 256)
- ASIC Example written consent form (ongoing fees) (PDF 137 KB)
- The FPA is working with the Financial Services Council (FSC) to develop standardised industry OFA consent forms and guides for use by planners and product providers.
- Regulations on transitional arrangements allow a FDS given to client during the transition period to include a reasonable estimate of the amount of any ongoing fees paid, and services expected to be provided for the 60 day period immediately before the FDS is provided, rather than the exact amount (if it’s not available).