Consent to Deductions – Ongoing fee arrangements, information to be provided where a fee is to be deducted from a clients account: An updated.
Further to the recent article as to the disclosure requirements around independence coming into effect from 1 July 2021, the Australian Securities & Investments Commission issued two instruments on 23 March 2021 in relation to its powers under the Financial Sector Reform ( Hayne Royal Commission Response No 2) Bill 2020. Both deal with the content of the consent required to be obtained before an ongoing fee can be deducted. One Instrument relates to where the client is the account holder, the other where the ongoing fee is being deducted, either directly or indirectly, from a client’s superannuation account.
The Instruments are,
- ASIC Corporations (Consent to Deductions – Ongoing Fee Arrangements) Instrument 2021/124.
- ASIC Superannuation (Consent to Pass on Cost of Providing Advice) Instrument 2021/126.
ASIC Instrument 2021/124 requires a dated written consent be obtained from the client that details:
- the name of the account holder.
- the name and contact details of the [entity / person receiving the ongoing fee].
- in relation to an existing ongoing fee arrangement that might be renewed by the account holder the frequency and amount of each ongoing fee the account holder will pay during the upcoming year if the account holder were to renew the existing ongoing fee arrangement, where the upcoming year is a period of 12 months beginning on the next anniversary day for the ongoing fee arrangement.
- in relation to a new ongoing fee arrangement that might be entered into by the account holder the frequency and amount of each ongoing fee the account holder will pay during the upcoming year if the account holder were to enter into a new ongoing fee arrangement, where the upcoming year is a period of 12 months beginning on a day that is no more than 30 days after the fee recipient gives or makes available to the account holder all of the information that this subsection requires to be included in a written consent.
- in either case, if the amount of an ongoing fee the account holder will pay during the upcoming year cannot be determined then a reasonable estimate of the amount of the ongoing fees the account holder will pay during the upcoming year and an explanation of the method used to work out the estimate.
- details of each account from which the account holder will pay ongoing fees and, for each account the amount of each ongoing fee the account holder will pay from each account.
- statements to the effect that:
- the consent will cease to have effect up to 150 days after the anniversary day for the ongoing fee arrangement, and
- the account holder can withdraw their consent or terminate or vary the ongoing fee arrangement at any time by notice in writing to the fee recipient.
Under the newly inserted 99FA CA to the Superannuation (Supervision) Act (SIS Act), the trustee or the trustees of a regulated superannuation fund must not directly or indirectly pass the cost of providing financial product advice in relation to a member of the fund on to the member, unless consent has been given by the member. A key concern of Commissioner Hayne about advice fees charged to superannuation products was that members have little visibility over ongoing advice fees and that there were instances where these fees were charged without the member’s awareness or informed consent.
Trustees of a regulated superannuation fund will need to receive from the member a written, dated, consent containing the information (ASIC Instrument 201/126), namely:
- the name of the member;
- the name and contact details of the fund;
- the name and contact details of the provider of the financial product advice;
- an explanation of why the member’s consent is being sought;
- how long the consent will last;
- information about the services that the member will be entitled to receive under the arrangement;
- as applicable:
- where the cost is passed on to the member by way of deducting fees from the member’s superannuation interest—a statement to that effect, including details of the interest;
- otherwise—an explanation of how the cost is passed on to the member, including details of the interest;
- as applicable:
- where subparagraph (7)(i) applies:
- the amount of the fees to be deducted from the member’s superannuation interest; or
- if the amount of the fees cannot be determined—a reasonable estimate of the amount and an explanation of the method used to work out the estimate;
- where subparagraph (7)(ii) applies:
- the amount of the cost; or
- if the amount of the cost cannot be determined—a reasonable estimate of the amount of the cost and an explanation of the method used to work out the estimate;
- a statement to the effect that the member can withdraw their consent at any time before the cost is passed on to the member by contacting the fund.
Advising clients on their superannuation appears to involve an increase in paperwork due to the different consent confirmation requirements.
Providing consent approval forms to deduct ongoing fee.
If you use a platform provider to manage a client’s financial assets, the platform provider will most likely ask you to provide the information rather than the client directly. Likewise, a Trustee of superannuation fund. You will need to monitor what each platform provider or Trustee requires to facilitate the capture of the authorisation by the client.
Amend your workflow to ensure the above is provided on a timely basis to the relevant entity(ies).
Accepting consent electronically
The client may provide their written consent electronically and receive that consent electronically. It does not have to be a physical return of the signed consent.
Joint account holders
Joint account holders must give their written consent every year.
Fee Disclosure Statement to all clients with ongoing fee arrangements – removal of grandfathering
Not only do the new FDS content requirements commence from 1 July 2021 but it applies to all clients. The grandfathering arrangements for ongoing fee arrangements entered into prior to 1 July 2013 will cease. There is a transition period of 12 months to provide FDS to these types of clients. You will need to identify the clients, tell them to expect to receive a FDS going forward and then determine when to have the 12-month period fall.
Clients consent in a Self-Managed Super Funds environment.
The Act’s uses the wording, “indirectly pass on the cost ..”. A member of a SMSF is Indirectly paying for the ongoing service fee. Either separate consents need to be obtained given the different consent requirements or one consent form is to be generated with two different parts covering the separate disclosures required. If there is more than one member in the SMSF, then each member must provide the consent documentation.
Consider the following circumstances for a SMSF:
- An ongoing service agreement is in place between the licensee and the corporate trustee for a SMSF.
- There are two members of the fund, member A and B.
Consents to be obtained by the licensee are:
- consent from the client (corporate trustee) to the licensee– content as ascribed in ASIC Instrument 2021/124, and
- separate consents from members A and B to the trustee – content as described in ASIC Instrument 201/126. Disclosure addressing paragraphs 7(ii) and 8(ii) would have to be provided.
The reason including the separate consents under point 2 above with the licensee is because clients tend to rely on the licensee to ensure compliance obligations are being met. I It is in the licensee’s interest to ensure the trustee is provided with the correct documentation otherwise fees may not be paid.
Reasonable estimate of fees over the next 12 months
Ongoing fee to be shown for a client in the coming 12 months is to be based on a reasonable estimate basis. Staff calculating the amount will need to receive guidelines from the licensee about the matters they should consider to arrive at a reasonable estimate.