The requirement to provide Fee Disclosure Statements to new and existing clients has proven to be the biggest challenge faced by licensees when implementing the Future of Financial Advice reforms, a new report from the regulator has found.
The Australian Securities and Investments Commission (ASIC) has issued a report which analyses how effectively licensees have implemented the Future of Financial Advice (FoFA) reforms. ASIC conducted a survey of 60 financial advice licensees, asking them to identify what measures they had taken to ensure their advisers were complying with certain FoFA measures, such as the best interests duty and FDS requirements.
The report found that meeting the requirement to provide an FDS to existing and new clients has been the biggest compliance challenge faced by licensees. 70% of licensees nominated FDS as the biggest challenge, followed by making changes to systems and procedures (65%) and adviser training (42%).
64% of licensees said that there was a strong risk of future non-compliance when it came to meeting the FDS requirements
Licensees also considered FDS to pose the greatest risk of non-compliance to their businesses. 64% of licensees said that there was a strong risk of future non-compliance when it came to meeting the FDS requirements. A further 42% said the best interests duty posed a risk to the business and 22% nominated conflicted remuneration as a compliance concern.
ASIC said many licensees were experiencing difficulties with disaggregating fee and commission data, particularly because there was no consistency of reporting across product providers. They also pointed to the lack of clarity in the product and fee information provided by product issuers.
Some licensees added that they considered FDS to be an unnecessary burden that did not provide a benefit to clients. It should be noted that since the completion of the ASIC survey the Government has introduced regulations to amend the requirement to issue an FDS so that it applies to new clients only.
Other key findings from the report included:
- 70% of licensees are asking advisers to use the best interests duty ‘safe harbour’ steps as a checklist when providing advice to clients
- There has been a 5% increase in the number of licensees providing insurance advice
- 29% of licensees have made changes to their Approved Product Lists as a result of FoFA; 14% have decreased the number of products on the list, and 4% have increased the number
- Over 90% of licensees indicated that there had been no change in the number of their representatives as a result of the reforms
- On average, grandfathered benefits (eg: trail commissions for customers engaged prior to 1 July 2013) represent 1/3 of licensees’ total income
ASIC Deputy Chairman, Peter Kell, said engaging with industry and stakeholders through reports such as this gave ASIC a greater understanding of key issues facing licensees.
“These projects allow ASIC to focus future regulatory actions on areas that the industry identifies as posing higher risks,” he said.
The FDS is a such difficult thing to bring in to our client interactions because of the simple fact it is a past/backward looking document. Our industry is about PLANNING and being forward looking. Clients don’t want to dwell on the past. Typically we will sit with clients at their review meeting and ask what their current focus is and what is happening in the year ahead – this engages & excites us and the client into actions and what needs to be done. We will then bring out a document to show them the fee they paid in the last year (which they know because they agreed to it the year before), services entitled to, services provided la di da .. valuable planning time wasted.
There has been no consideration at all in the legislating of this for the majority of advisers who come through with the service to clients and are adequately remunerated for the service & value they provide. I get the impression also clients are left feeling babied that they need everything laid out for them and can’t make a decision up on their own whether or not they want to continue with an advisers service.
It has just been assumed that all advisers charge clients and don’t come through with any service which is sad – and we all know who has driven this assumption. (I would say also by someone who sits in a cave somewhere and never has sat in with an adviser in their review meeting)
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