As a part of the government’s response to the recommendations of the Financial Services and Banking Royal Commission (Hayne Royal Commission), more reforms will be made to the financial services industry in order to improve consumer protections. Perhaps the reform that has received the most attention is the one related to ongoing fee arrangements.
Out of the many harrowing stories to come out of the Hayne Royal Commission, many related to clients of financial advisers being charged for services that were not provided, this was found to be especially prevalent in clients who were provided services under ongoing fee arrangements. This practice was commonly reported in the media as “fee for no service”.
Under the current laws, ongoing fee arrangements only need to be renewed every 2 years, and any ongoing fee arrangements entered into before 1 July 2013 are not required to be renewed. The renewal period could also begin and end on different dates to the previous renewal period depending on when the financial adviser last provided the client with a renewal notice. In addition, there is no requirement to renew or obtain a new consent from the client in relation to the deduction of ongoing fees after the client has given initial consent.
To address “fee for no service”, the Royal Commission made three recommendations including changing to an opt-in arrangement. As a part of its response to clean up the industry, the government is currently seeking to legislate these recommendations in which all financial services providers that receive fees under an ongoing fee arrangement will be required to provide clients with a fee disclosure statement during the same period each year which:
In addition, financial advisers will be required to obtain written consent before fees under an ongoing fee arrangement can be deducted from a client’s account. This written consent cannot last longer than 150 days after the next “anniversary day” to ensure that consent to the fees are being sought each year. The new laws will encompass all ongoing fee arrangements regardless of when it was entered into.
These changes are aimed at providing clients with more frequent opportunities to assess whether the services they are receiving are commensurate with the ongoing fees they are paying, while at the same time providing greater visibility around the nature and amount of fees being deducted automatically from their accounts.
