The Fee Disclosure Statement (FDS) became part of our advice regulation the Future of Financial Advice (FOFA) reforms nearly a decade ago.
It was meant to act as a nudge for licensees in relation to disengaged clients to trigger more formalised consent to fees and services. Recent proposals that will fuse it with opt-in requirements, which lack vital definition, risk leading to spiralling paperwork for consumers.
ASIC is currently developing a Legislative Instrument (LI) for the facilitation of consent relating to these two parts of the regulatory net. Our members are providing forensic and detailed input into it to help ensure the resulting instrument is practical and fit for purpose.
An FDS specifies for clients who have an ongoing fee arrangement, how much they’ve paid, the services they’ve received and were entitled to receive. It’s backwards-looking. Opt-in requirements, also introduced as part of FOFA require that client’s consent must be obtained every two years, but this will change to one year when Royal Commission legislation passes.
That legislation, along with the LI, bakes into it a forward-looking FDS, with an annual opt-in requirement welded to it. It means more documentation and paperwork for consumers. Consumers will likely be required to receive and understand up to four documents in their first year:
- the Ongoing Agreement,
- the Forward-Looking FDS,
- the Backward Looking FDS and
- the Renewal notice.
This is outside of the wheelbarrow of paperwork clients are already presented with when engaging with their adviser:
- Financial Services Guide.
- Product Disclosure Statements.
- The Statement of Advice.
Simply increasing paperwork does not necessarily translate into better-informed consumers. Advice businesses face a volume of costly administration work with little real benefit to the client. More original ways of effective disclosure and helping consumers understand the services they are receiving is needed. For example, it is perhaps worth highlighting the FSC’s work and partnership with other industry associations on ways to improve transparency and the client experience and day to day operations of businesses in serving them through a more flexible approach to the use of technology.
The issues cropping up in the LI are not really much different from the broader issues pertaining to advice-related Royal Commission legislation. Fundamental core terms like demonstrating “fair value” are not defined. Nor are the procedural steps to how to show it. The lack of a materiality threshold for immaterial defects in a such as a minor mistake could ultimately void advice transformative for a client’s circumstances, and could unfairly pressure advisers trying to do the right thing.
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OPINION PIECE - by Zach Castles, Policy Manager – Advice