Journal

Posted December 22, 2020

Posted By Meghann Cannon

Annual opt-in and consent, FDS changes and non-independent warnings

Prepared by Catherine Evans

We have been waiting all year for the FDS, annual opt in and annual consent changes that were foreshadowed some time ago. The Bill will be debated in the new year and so the changes are not yet final.  Given the large impact these changes will have for some advisers we have summarised the key information as it stands at today’s date. However, we recommend firms wait until the new laws are actually passed before making substantive changes to systems and process given there are still some items that, in our view, need further clarification and changes.

New form of fee disclosure statement (FDS)

What it involves

It is proposed that there will be a new form of FDS. This will be a single document each year:

  • containing existing FDS information (i.e. services promised, whether they were delivered and fees paid over the previous 12 month period);
  • outlining the fees that will be charged and the services the client is entitled to in the following 12 month period;
  • seeking annual renewal from the client for the ongoing fee arrangement.

Where the fees for the following 12 month period are not known or cannot be determined, a reasonable estimate can be provided along with an explanation of the method used to work out the estimate.

There is prescribed renewal wording to be included. The FDS must be provided to the client within 60 days after the anniversary date. The client must renew the arrangement in writing before the end of the renewal period which is 120 days from the anniversary day.

The renewal period begins and ends on the same date each year so sending the FDS does not re-set the date. It is not clear how the renewal date can be re-set to align for efficiency purposes.

Items needing clarification

The explanatory memorandum states that the estimate of future fees should be based on all relevant information available to the fee recipient at the time of the estimate and reflect their most accurate account of the client’s position at that time. It goes on to say that fee recipients should factor in information known to them at the time of providing the estimate such as employer contributions that are expected to be made throughout the year to a client’s superannuation fund, additional investments that may be made by a client based on the advice provided and any known large withdrawals such as asset-based fees that the client is being charged. In our view, this is unworkable and will be impossible for fee recipients to manage in an efficient and effective way.

The draft legislation requires the FDS to include fees payable after the end of the upcoming year. The explanatory memorandum suggests that this is so that there are no gaps in disclosure. However, we need further clarification of the time frame this extends to as it is currently not clear.

When does it come into effect?

1 July 2021.

However, transitional provisions apply to ongoing fee arrangements which are in place immediately prior to 1 July 2021. The transition provisions mean that a client must be provided with a new format FDS before 30 June 2022 and then the date that the new FDS is provided to the client sets the anniversary date going forward. This means that if a client is usually due a FDS in say August 2021, you would have until 30 June 2022 to provide the FDS in the new format. The look back period for these transition FDSs must cover the entire period since the last FDS though so the client does not miss out on disclosure.

Pre 1 July 2013 ongoing fee arrangements are brought under the new regime (i.e. all ongoing fee arrangements will be subject to annual renewal).

Annual consent to deduct fees

What it involves

Clients will need to give the fee recipient (i.e. the AFSL/CAR) written consent to deduct fees each year.  It is expected this will be done at the same time as the FDS. The fee recipient must obtain consent within 150 days after the anniversary date. The fee recipient must provide the account holder (i.e. product issuer) with a copy of the consent prior to or as part of arranging the deduction.

Where an account is held jointly, the fee recipient must obtain consent from all account holders, not just the client.

The OFA is not permitted to include conditions that require the client to give consent to deduct fees.

The explanatory memorandum suggests that ASIC may determine requirements for giving consent to deductions (i.e. a specific form or the form of words that must be used and may also require the consent include specified information).

The consent can be withdrawn by the account holder (or client) at any time.

Items needing clarification

We need clarification on how the consent obtained by the fee recipient will be delivered to the product provider. This is not yet clear. We are aware that some product providers are preparing to obtain consent directly from the client. However, the legislation suggests that the consent must be obtained by the fee recipient and provided to the product provider.

On our reading, we do not see why the renewal notice and consent could not be contained in the one document. However, firms will need to work out whether the whole document would then be provided to the product provider or whether it would be better to have a stand-alone consent document.

When does it come into effect?

1 July 2022.

Non-independence warning

What it involves

The new law requires written disclosure of lack of independence in the FSG (where an AFSL/AR is not entitled to use the word independent (or similar words) under existing laws). ASIC can determine the specific requirements of the disclosure.

The FSG must clearly, concisely and prominently state that the AFSL/AR is not independent, impartial or unbiased in relation to the provision of personal advice and explain the reasons why. 

When does it come into effect?

1 July 2021.

Connect

Receive regular updates.