Fee Disclosure Statements

[KMack]

It appears that there is no obligation to provide an outgoing/terminating client with a final or up-to-date FDS. Can you please comment on the accuracy or otherwise of the below example.

For example: Say an existing client of Licensee A has a disclosure date of 1 August 2013 (based on ongoing service agreement signed 1 August 2012), and their first FDS is provided on 28 August 2013, covering the period 1 August 2012 to 30 July 2013. Let’s say they terminate the relationship with Licensee A in June 2014. They would have been due to receive their second FDS from Licensee A by 31 August 2014. Instead, they move to a new adviser with Licensee B and sign a new agreement there, on 1 July 2014. They will be due to receive their first FDS from Licensee B by 30 July 2015. The client would therefore not receive an FDS covering any of the period from 1 August 2013 to 30 June 2015. Is this correct?

[Mark Harbert]

Section 962 of the Corporations Act defines what an ongoing fee arrangement is for the purposes of Fee Disclosure Statements under the Act. Section 962 states that:

(1)  This Division applies in a case where:

(a)  a financial services licensee, or a representative of a financial services licensee, enters into an ongoing fee arrangement with another person (the client ); and

(b)  the arrangement has not terminated for any reason.

Section 962H (1) in describing an FDS specifically states that it is in relation to ongoing fee arrangements.

In the hypothetical you have provided the ongoing fee arrangement has come to an end.  It will be irrelevant that the end date was close to the date when the FDS was to be produced.  Ultimately the client will enter into a new ongoing fee arrangement with their new planner and will be aware from the SoA what costs they will incur over the next 12 months.  One of the purposes for producing an FDS is to allow the client to identify if they are receiving value for money and to decide whether to change planners.  As the client has already changed planners an FDS takes on less importance.

 

For further information, please contact our office.

Author: David Court

Co-contributor: Mark Harbert

[KMack]

Could you please consider the following scenario for FDS purposes:

– An adviser of Licensee A takes on a new client who was previously a client of an adviser of Licensee B (unrelated advisers and Licensees).

– There are no arrangements/contracts/agreements between the two advisers in relation to the client (ie the client simply decides to terminate with one adviser, and commence dealings with the other).

– The adviser of Licensee A initiates their first ongoing service level agreement with that new client, which may or may not have similar types and amounts of fees as those charged by their previous adviser.

It is my understanding that the definitions of “assignors” and “assignees” for FDS purposes, relate to the sale/purchase of clients and don’t apply to the above scenario, where the client makes a decision to change adviser.

It would follow then, that the adviser of Licensee A does not need to contact the adviser from Licensee B, for any information to include in an FDS, as Licensee A’s first FDS 12 month period is from the date their agreement with the client commences, and the previous adviser dealings are not relevant.
Can you please confirm/comment.

[amelia-w]

Hi KMack,

The following are two quite different scenarios:

(a) A client deciding to terminate dealings with Licensee 1 and commence dealings with Licensee 2
(b) Licensee 1 assigning their rights under an ongoing fee arrangement with a client to Licensee 2.  In this case Licensee 1 would be the ‘assignor’ you referred to, and Licensee 2 the ‘assignee’

The scenario you outline appears to relate to situation (a). In this case Licensee 2 would treat the client as a new client and would not need to have regard to any prior arrangements the client may have had with Licensee 1 or any other previous advisors. This is in contrast to the circumstances in situation (b).

For more details regarding what needs to be included in a FDS for a new client, refer to ASIC’s RG 245. If you require guidance regarding a particular situation, however, you may need to seek legal advice. If you think we can be of help, don’t hesitate to contact us via email (law@hnlaw.com.au) or drop us a line (03 9670 8200).

Author: David Court
Co-contributor: Amelia Walsh

[Author]

Posts