ASIC has announced relief, via a no action position for FDS and Opt-in obligations, for Victorian advice businesses.
In a release supporting the regulator’s move, which applies to advice businesses either solely or substantially located in Victoria, AFA CEO Philip Kewin says that the association is pleased with the announcement as it has been working closely with ASIC, the Government, the FSC and the FPA to find a solution “…for what we expect will be a growing issue with non-compliance with the FDS and Opt-In obligations during lockdown in Melbourne and more broadly in Victoria”.
Kewin says that with advisers and their staff working from home in some cases, or being unable to work due to system issues or childcare responsibilities, it would not be surprising that a number of advisers have missed the FDS and Opt-In deadlines for some of their clients.
Click here for the ASIC announcement which can be found under the heading: What is ASIC doing to assist financial advice businesses that are impacted by the restrictions in Victoria.
The AFA has delivered an excellent summary on the current obligations and ASIC’s no-action position to assist its members with servicing ongoing fee clients.
It says that the obligations for FDSs and Opt-In vary in important ways between those clients who are pre-FoFA (1 July 2013) and post-FoFA. It has addressed each separately.
Pre-FoFA Clients
For pre-FoFA clients, an adviser must issue an FDS every year within 60 days of the disclosure date (anniversary of the ongoing fee arrangement). The AFA says that whilst a failure to issue the FDS on time is a breach of the law, it does not lead to a termination of the ongoing fee arrangement.
ASIC No Action Position – Pre-FoFA Clients
The association adds that ASIC has announced that it will not take action against a Victorian financial adviser who has missed an FDS deadline for a pre-FoFA client between 2 August 2020 and 26 October 2020, provided they issue the FDS by 7 December 2020.
The AFA says this is a good outcome and hopefully, with the end of the lockdown approaching, it will enable businesses to issue these FDSs within that window and everything will return to normal for these clients.
Post-FoFA Clients
For post-FoFA clients, the AFA states that the adviser must issue a FDS each year within 60 days of the disclosure (anniversary) date.
Every second year the adviser must issue both an FDS and an Opt-In Notice together and within 60 days of the second anniversary of when the renewal notice was last signed (renewal notice day).
… it is the disclosure date that typically sets the time-frame and deadline…
However, it says that given that the FDS timing is also dictated by the disclosure date, which comes before the renewal notice day, it is the disclosure date that typically sets the time-frame and deadline.
The AFA also notes there is one important legal difference for post-FoFA clients. Any failure to meet the obligations, including the following, leads to the automatic termination of the ongoing fee agreement:
- Failing to issue the FDS or failing to issue it on time
- Incorrect information, including the amount of fees in the FDS
- Failing to issue an FDS with the Opt-In Notice
- The client not responding to the Opt-In notice within 30 days
ASIC No Action Position – Post-FoFA Clients
The AFA’s summary for members says that ASIC does not have the powers to provide an exemption for either the FDS or Opt-In obligations and therefore cannot alter the fact that a failure to meet the FDS or Opt-In obligations for a post-FoFA client leads to the unavoidable and automatic termination of the ongoing fee arrangement.
It says that neither do clients have any ability to waive this obligation or the outcome. “A fix to this issue, in the Covid-19 context, will require the intervention of the Treasurer, through a regulation or the utilisation of the Covid-19 relief powers that he has.”
The association adds that what ASIC has provided is a no action position with respect to post FoFA clients where the FDS or Opt-In obligations are not met in the period between 2 August 2020 and 26 October 2020.
“This means that they will not take regulatory action, however, it does not change the fact that the ongoing fee arrangement will be terminated and that the adviser will need to take action to notify the client and to recommence the arrangement.”
An FDS/Opt-In Recovery Plan
The AFA states that any adviser facing this situation will need to carefully analyse the exposure that they have, and then prioritise the work that needs to be done to recover the situation. This will vary from practice to practice, however it says some key things to consider are:
- The ongoing fee arrangement for post-FoFA clients is terminated from the date of non-compliance, so to recommence fees, post-FoFA clients are likely to be the priority
- Depending upon your licensee’s rules, an ongoing fee arrangement can be recommenced by the issue of an engagement letter that sets out the services to be provided and the fees to be charged. The client needs to agree to this, however this can be done by electronic means
- Where the ongoing fee arrangement has been terminated for post-FoFA clients, there is technically no need to provide the FDS and the Opt-In notice is now irrelevant (i.e. it is a new arrangement). Advisers may still choose to issue the FDS
- With pre-FoFA clients, as there is no termination of the arrangement, and an extension has been provided until 7 December 2020, these cases might be better to address after the post-FoFA clients have been resolved
The AFA’s summary says it’s important to note that ASIC makes it clear that this no action position does not prevent legal action being taken by clients or third parties, “…however we think that this is unlikely”.
It concludes that in this instance, ASIC has done everything that it can within the limits of the law to find a solution for Victorian-based financial advisers impacted by FDS/Opt-In non-compliance due to the Covid-19 lockdown.
The association says broader relief measures are in the hands of the Government and that it has communicated with them to explain the difficulties confronting financial advisers and to suggest potential solutions.
