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ASIC’s ongoing fee guidance explained

ASIC
Sarah Kendell
16 June 2021 — 3 minute read

The corporate regulator has released new guidance on when and how ongoing fee arrangements apply after the 1 July changes. Here’s what you need to know.

When a fee arrangement is ‘ongoing’

The regulator’s guidance seeks to provide more clarity on what is and isn’t an ongoing fee arrangement, given the definition appears only to apply to arrangements of more than 12 months. 

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ASIC has said it will use a range of criteria to decide if a fee arrangement would be classified as “ongoing”, such as whether the agreement is limited to a fixed-term period of 12 months or less, whether a licensee has systems in place to turn fees off at the end of the fixed-term period, and whether there is an understanding between the adviser and client, such as through marketing material, that the arrangement will apply for less than 12 months.

Commissions may be considered ongoing fees

The regulator has said if an adviser (fee recipient) receives a fee from a third party paid under a commercial arrangement between a product provider and recipient – i.e. insurance commissions – this would generally not be considered an ongoing fee, but could be if the fee is paid “with the clear consent, or at the direction, of the client”.

OFA anniversary days

The guidance specifies that the “anniversary day” of an ongoing fee arrangement is the date the client signs an authority to proceed with the agreement, not necessarily the day the client starts paying fees and receiving services. 

For those under the transitional arrangements, the day the client is provided with a fee disclosure statement will become the anniversary day for the following years.

How clients can renew an OFA

Clients can renew an ongoing fee arrangement up to 120 days after the anniversary day of the arrangement, according to the guidance. 

ASIC says this does not have to be in writing, and may instead take the form of consenting via email or text message, or checking a box on a webpage or digital document. However, records such as screenshots of the signatures must then be kept for five years similar to written consent documents.

If clients do not elect to renew within 120 days of their anniversary day, the agreement will terminate 30 days after this 120-day period. A new arrangement must then be commenced if the client wishes to continue to receive services after this date.

Further clarification on FDSs

The guidance contains some clarification on what advisers should do if they are unable to calculate the exact amount the client will be required to pay during the coming year, such as for advisers who charge asset-based fees. 

In this case, ASIC says advisers should provide a reasonable estimate of the amount “based on all the information available” such as expected super contributions during the year, and information on how they came to that estimate.

The regulator also states that FDS may be given electronically such as through an app, but may not be delivered in more creative formats such as video, as they are legally restricted to being written documents.

Transitional period relief

In its guidance, ASIC noted that it does not have the power to alter the period of time that must be covered in an FDS, following concerns raised by the AFA recently that transitional FDS must provide an exact breakdown of fees in the previous and upcoming years, which the association said was logistically impossible.

With the government’s announcement on Friday it would make a regulation to address this issue, ASIC said it would update its guidance to take note of this regulation once it was made. The AFA has welcomed the new regulation that the government has said will be in place before 1 July, but has noted that it will make the production of FDS “more manual than usual” in the transitional period.

For advisers who have a disclosure day that falls before the new laws come into force and provide the FDS in the 60-day period after this date, the FDS must include fees for the 12-month period before the FDS is provided, the 12-month period after, and any additional days within the 60-day period between the disclosure day and when the FDS was given.

What accounts require consent

The regulator said that the requirement to obtain written consent to fees does not apply to deducting ongoing fees from an account linked to a credit card or basic deposit product. Advisers’ licensees can also deduct fees from a client’s account on their behalf without needing an additional consent.

If accounts are jointly held by a couple, both members of the couple must give individual consent, ASIC noted.

Example consent form

ASIC provided an example consent form in its guidance that is approximately a page in length, and includes sections on the amount of fees the client will pay, the reasons for seeking consent, how long the consent period lasts, how clients can withdraw it, the client’s account details and signature.

ASIC’s ongoing fee guidance explained
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