“I’m through accepting limits
’Cause someone says they’re so
Some things I cannot change
But till I try, I’ll never know”
— ASIC Info Sheet 256, or “Defying Gravity” – Wicked the Musical
There is no shortage of stories expressing confusion and bewilderment during (and after) the 2021-22 transition year when it comes to Ongoing Fee Arrangements.
Now that we’ve had a few months to settle into the 1 July 2022 changes, we’ve collated some common questions from advisers and licensees about what changed after the transition year, when to change Ongoing Fee Arrangements, and where we go from here.
Playing by the Rules
“Every fool’s got to learn he’s got nothing to lose
Playin’ by the rules”
— “Playing by the rules” Michael McDonald
Info sheet 256 remains the primary guidance to follow post-transition year.
Understanding the various components required in the fulfilment of an Ongoing Fee Arrangement helps to reduce the confusion around what to do.
Let’s start by defining and explaining with the key elements.
Ongoing Fee Arrangements
- Ongoing Fee Arrangements are a contractual arrangement between the adviser and the client.
- Payment can be made by the client directly or via product providers as appropriate for the clients’ personal circumstances.
- Note that a Fixed Term Arrangement that is essentially the same every year may be substantively considered an Ongoing Fee Arrangement by ASIC. Please talk to your Licensee or seek help from Assured Support if you are unsure if this applies to any of your clients.
Fee Consent Forms
- Fee Consent Forms are the process by which a client accepts an Ongoing Fee Arrangement, see ASIC guidance on what should be in a Fee Consent Form.
- Note that product providers have their own forms that clients need to authorise in order to deduct fees from products. Product providers may have rules over and above what is required by law so it is important to understand the product providers terms and potential limitations when relying upon payments from product providers to collect client fees.
Anniversary date
- The Anniversary Date specifically refers to the anniversary of the Ongoing Fee Arrangement, and it is important to de-couple this from the date that you would normally send a client review as these dates can be different.
- During the 2021-22 transition year there was an opportunity to ‘re-set’ the Anniversary Date to help accommodate the incoming FDS changes.
- This has not been available since 1 July 2022. Accordingly, the only way to change an Anniversary Date now is to:
- Cease the Ongoing Fee Arrangement entirely.
- Cease any fees being taken from product providers.
- Provide an FDS (if a full 12 month period has elapsed) or Fee Statement (if less than 12 months has elapsed) to the client, see ASIC FDS guidance.
- Create and commence a new Ongoing Fee Arrangement.
Annual reviews and services provided
- The provision of an advice document is still considered by ASIC to be the substantive part of an Ongoing Fee Arrangement.
- Review advice does not need to be provided on the same date as the Anniversary Date of the Ongoing Fee Arrangement, all that’s required is that it’s provided within the Anniversary Year.
- The expectation is simple; if an adviser promises to provide advice, they deliver it.
Changing Ongoing Fee Arrangements
“Ooh, tell me how will I know?
How will I know?”
— “How will I know?” – Whitney Houston
There are some common trigger events that advisers and licensees ask us about regarding changes to Ongoing Fee Agreements:
Change of entity
- Changes of entity can be non-superannuation to superannuation, public offer superannuation to SMSF, essentially anything that fundamentally changes the ownership structure of the entities paying the fees.
- Moving from superannuation to pension phase within the same public offer fund or SMSF entity would not constitute a change of entity as the Trustees and beneficial owners both remain the same. Note that the product provider may require their adviser service fee forms to be re-done.
Change of adviser
- If the providing entity is not changing, then the Ongoing Fee Agreement does not need to change eg if Joe Happy of Awesome Advice Pty Ltd retires and Sarah Smile of Awesome Advice Pty Ltd is now allocated as the adviser, Awesome Advice Pty Ltd can update the adviser name to Sarah when the next Ongoing Fee Agreement is issued.
- It is only when the providing entity changes that the Ongoing Fee Agreement needs to be varied, or cancelled and re-done altogether, please ask your Licensee or Assured Support for assistance if you’re in doubt.
Deceased client
- If a client dies, you must switch off all fees and inform the product providers (if relevant).
- You should also inform the notifying party that you can continue to provide advice services to ensure that the deceased’s investment portfolio does not decline or suffer whilst waiting for probate to be granted.
- If the client dies with a valid Will in place, the Executor can choose to engage you for a service and you will need to re-direct fees and advice to the Executor for the period they require.
- If the client dies intestate, you must wait for the Public Trustee to issue the Letters of Administration. Once issued, you can re-engage using a fee agreement and advice directed to the nominated person(s).
Surviving partner
- If they are not a client, follow the steps outlined above.
- If they are a client, wait for a copy of the Will, and confirmation from the Solicitor before re-engaging with the surviving partner (if they are also the Executor/Administrator).
Incapacity
- If the lost capacity occurred incrementally, the affected client may have appointed persons to represent their interests. However, you should not accept a person’s appointment without reviewing a certified copy of the Power of Attorney. A Power of Attorney (“POA”) is a legal document that confirms the principal’s appointment of another person (”the attorney”) to make decisions about the Principal’s money, arrangements, property and assets. A General Power of Attorney is useful for short-term appointments but only an Enduring Power of Attorney, useful for long-term appointments, survives the principal’s loss of capacity.
- If your client lost capacity before they executed a POA, then you or the principal’s legal representatives should apply to the Courts for Orders or the appointment of a Guardian or Financial Manager. Unless, or until that occurs, you should only maintain their arrangements;
- For more about incapacity, read Capacity and care.
Divorce
- Once you become aware of a separation, you must decide on the advice relationship and inform the clients involved of your proposal. Regardless of your decision, you will need to inform both clients of your choice and terminate (or amend) any existing fee agreements and consents.
- If a couple is separating, and you need to terminate a fee agreement/s, and you have not provided any services/part thereof, you should use your professional judgement to assess whether any fees should be refunded to the client. Each scenario is unique, and you may wish to check your position with your Licensee, or contact us at Assured Support.
The Way Forward
“I’ll change my life.
I make it up
And nothing is gonna stop me now.”
— “I am changing” – Jennifer Hudson
It’s important to remember that – while there are prescriptive rules around timing and process – the substantive content of an Ongoing Fee Arrangement is a contract between the adviser and the client. Each client situation is unique, and will require care and consideration depending on the client’s needs and the relationships and entities involved.
When they are well-prepared, Ongoing Fee Arrangements are not just a legal requirement; they can also be a powerful tool to clearly set expectations, promote trust and provide a framework for resolution if something changes or goes wrong with a client relationship.
If you would like help reviewing your Ongoing Fee Arrangement documents and processes, please contact us at help@assuredsupport.com.au
