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Friday 12 October 2018

18-306MR ASIC action on compliance breaches with fees disclosure and renewal notices

ASIC is today announcing a review of compliance with requirements for Fee Disclosure Statements and Renewal Notices in the financial advice sector.

ASIC has received a number of breach reports from licensees which indicate they may have failed to comply with the Fee Disclosure Statement (FDS) and Renewal Notice requirements that were implemented as part of the Future of Financial Advice (FOFA) reforms in 2013. ASIC is investigating these reports and will take enforcement action where breaches are substantiated. 

In addition to investigating these particular instances, the volume and range of breach reports indicates a significant risk of systemic non-compliance. Therefore, ASIC will undertake a project that will test compliance with FDS and renewal notice requirements across the industry.

ASIC will examine to what extent advice licensees:

  • issue FDSs and Renewal Notices to customers;
  • issue FDSs and Renewal Notices within the time frames set out by the law;
  • include the required content in the FDSs;
  • ensure the content of FDSs is accurate, for example, in describing what customers are charged for and what services customers have received;
  • have appropriate procedures in place to ensure fees for ongoing services are discontinued when the arrangements are terminated as a result of licensees failing to comply with the FDS or Renewal Notice requirements.

ASIC’s ongoing work on fee for no service failings in the advice industry has highlighted the importance of FDSs and Renewal Notices. These were designed to assist in mitigating future fee for no service failings by:

  • FDSs enabling customers to gain a better understanding of the advice services they are being charged for and the services they are entitled to receive; and
  • Renewal Notices, and the requirements for customers to actively opt-in before they are charged ongoing service fees, significantly reducing the likelihood of passive or disengaged customers being charged ongoing fees.

ASIC will test compliance with these obligations across a range of small and large licensees and will provide our findings in 2019. 

ASIC is currently investigating substantial breaches of these obligations with a view to taking enforcement action.

ASIC is also supervising remediation programs which require licensees who reported failures to issue compliant FDSs to customers and/or refund and compensate customers for the ongoing service fees charged.  

Background

Under Section 962G of the Corporations Act 2001 (the Act), customers who have entered into an ongoing fee arrangement with their advice licensee must be provided with an FDS at least every 12 months. Section 962H of the Act provides that the FDS must provide details about the amount of ongoing fees paid, information about the services the customer was entitled to receive under their arrangement, and information about the services they actually received.

Under s962K of the Act, customers with an on-going fee arrangement must be provided with a written notice every two years so that they may renew the ongoing fee arrangement. Section 962K specifies that if the client either opts-out, or does not actively opt-in, the ongoing fee arrangement is terminated.

Section 962F further provides that a failure to comply with the FDS and/or Renewal Notice obligations terminates the entitlement of the advice licensee to charge an ongoing service fee to the client.

These reforms were implemented as part of the FOFA reforms to address the problems of passive or disengaged clients paying ongoing advice fees without receiving ongoing advice.  Failure to comply with these provisions can result in civil penalty action.

ASIC highlighted this problem in its 2016 REP 499 Financial advice: Fees for no service.  Remediation programs overseen by ASIC have so far resulted in advice licensees paying $259,555,513 in compensation to their customers.  Based on estimated further compensation, the amount of compensation paid will significantly increase.

If you have ongoing fee arrangements with customers, you need to give customers a Fees Disclosure Statement and a Renewal Notice. Remediation of Fees for No Service covers situations where fees are charged when no advice or service was actually provided. For the latest update on the latter, see the progress of Fees for No Service remediation at 18-229MR.

Last updated: 12/10/2018 04:30