Moving beyond hard-copies
If we’re serious about understanding how we can replace hard-copy documents with digital alternatives, particularly as it relates to contracted services, we need to appreciate the operational aspects of effectively documenting these arrangements and the critical importance of context and genuine consent.
Although these principles may apply to a range of arrangements, let’s start with two pain points for many advisers – Ongoing Fee Arrangements and Renewal Notices.
Although these principles may apply to a range of arrangements, let’s start with two pain points for many advisers – Ongoing Fee Arrangements and Renewal Notices.
The good news is that life may become much simpler given the Government’s intent to facilitate the use of electronic transactions and promote business and community confidence in their use.
Before we explore the opportunities afforded by the law, it’s important to understand the technology and the similarities and differences between electronic and digital signatures.
An electronic signature is simply a visual representation of a person’s name or signature that’s provided for the purpose of confirming their identity and their intention to contract.
It’s captured electronically or through mechanical means such as signing a PDF.
A digital signature is an encrypted and independently validated e-signature that provides greater assurance to contracting parties.
Ongoing Fee Arrangements
CORPORATIONS ACT 2001 – SECT 962A Ongoing fee arrangements
(1) If:
(a) a financial services licensee gives personal advice to a person as a retail client; and
(b) that person enters into an arrangement with the financial services licensee, or a representative of
the financial services licensee; and
(c) under the terms of the arrangement, a fee (however described or structured) is to be paid during a
period of more than 12 months;
the arrangement is an ongoing fee arrangement .
The Corporations Act s962A(1)(b) requires a client to “enter into an arrangement” to commence an Ongoing Fee Arrangement, but this doesn’t necessarily require paper and a wet signature.
In fact, the form and nature of the arrangement is not specified. To be accepted (and enforceable) the arrangement must demonstrate the following components :
- Offer and acceptance
- Intention to contract
- Consideration
- Capacity to contract
- Certainty of terms; and
- Legal Purpose.
As a general rule, the Electronic Transactions Act 1999 provides that a communication will not be invalid merely because it took place by means of electronic communication, such as email or through use of a platform. So you can effect arrangements by email (but it’s prudent to retain read receipts).
In Australia, with limited exceptions, there’s no real difference between electronic signatures (a visible representation of a person’s mark or name) and old-school wet signatures.
Some government or regulatory bodies, like the ATO or ASIC, might prescribe their protocols for accepting digital documents, but as a general rule electronic signatures are generally valid for most purposes. To be more accurate, for a digital signature to be valid, it must satisfy certain conditions:
- It must clearly identify the signatory and confirm their intentions.
- The method of identification must be reliable.
- The parties must expressly consent to the use of the digital signatures.
Although some lawyers might argue in favour of the evidential weight of physical documents, an ‘Agreement’ doesn’t have to be physically signed to have validity. In Stuart v Hishon [2013] NSWSC 766 where Justice Harrison noted that
“Mr Stuart typed his name on the foot of the email. He signed it by doing so. It would be an almost lethal assault on common sense to take any other view”.
This reinforces an earlier case that found that the use of a typed signature was sufficient to provide identification and confirm consent.
In respect of an ongoing service agreement, consent can therefore be demonstrated by an email response from your client stating:
“I have reviewed the Ongoing Service Agreement provided to me and wish to engage you on those terms. I understand the costs of engaging you and agree to the terms and conditions of the proposed Agreement.
Regards, [Client Name]”
Renewal Notices
CORPORATIONS ACT 2001 – SECT 962K Fee recipient must give renewal notice
(1) The current fee recipient in relation to an ongoing fee arrangement must, before the end of a period of 60 days beginning on the renewal notice day for the arrangement, give the client a renewal notice and a fee disclosure statement in relation to the arrangement.
(2) A renewal notice , in relation to an ongoing fee arrangement, is a notice in writing that includes:
(a) a statement that the client may renew the arrangement by giving the current fee recipient notice in writing of the election; and
(b) a statement that the arrangement will terminate, and no further advice will be provided or fee charged under it, if the client does not elect to renew the arrangement; and
(c) a statement that the client will be taken to have elected not to renew the arrangement if the client does not give the current fee recipient notice in writing of an election to renew before the end of the renewal period; and
(d) a statement that the renewal period is a period of 30 days beginning on the day on which the renewal notice and fee disclosure statement is given to the client.
(3) The regulations may provide that subsection (1) does not apply in a particular situation.
You’ll see that 962K(2)(c) requires notice in writing from the client to renew. In fact, to renew an ongoing fee arrangement, the adviser needs to issue the notice to the Client, explain the reason for the document and explain what happens if the arrangement is not renewed.
“Notice in writing” will be determined by reference to the contract – in this case, the Letter of Engagement, OSA, FSG or Authority to Proceed – and can be qualified by the pattern of conduct between the parties.
As you know, the Electronic Transactions Act 1999 confirms that valid notices can be provided by means of electronic communication method, such as email. Client consent can be provided in the same way.
To renew ongoing arrangements, a client could simply send an email confirming that
“I have reviewed the Renewal Notice and Fee Disclosure Statement provided to me and wish to renew the ongoing fee arrangement detailed in your email.
Regards, [Client Name]”
Again, their response will need to include their signature or auto-signature but, bear in mind, that a deliberately typed e-signature provides more certainty than an auto-signature does.
Digital and electronic signatures
While it seems self-evident that an electronic signature is, of necessity, digitised there is a difference between electronic and digital signatures.
An electronic signature is simply a visual representation of a person’s name or signature that’s provided for the purpose of confirming their identity and their intention to contract. It’s captured electronically or through mechanical means such as signing a PDF.
While an electronic signature is digitised, a digital signature is differentiated not by the name or capacity of the signer but by the cryptographic authentication technology used. In the US, the Digital Signature Standard (DSS) outlines the algorithms that can be used to generate digital signatures. Australian Standard 5045—2004 addresses the application of digital signatures.
Practical considerations
The Law provides advisers with options, but it’s important to understand the importance of both context and genuine consent. Acknowledging an email won’t create a legal contract in the absence of intent to contract. Without certainty, and consideration and capacity to contract, neither a wet nor an electronic signature will have any legal weight. However, those clients that would prefer simpler and more efficient communication methods can provide their consent, and authorise your activities, by electronic means.
To maximise the flexibility the law allows, you should:
- amend your Financial Services Guide (and similar collateral) to refer to your use of electronic signatures;
- provide clients with the option to use, or provide, wet signature documents;
- obtain clients’ specific consent to accept, and rely on, electronic signatures;
- choose an e-signature technology platform with a consistent and reliable methodology;
- warn them of the risks of providing electronic signatures and the need to secure their email; and
- tell them how they can withdraw their consent.
