Most fee disclosure statements are non-compliant: ASIC

ASIC’s Report 636 focused on whether the fee disclosure documents provided to clients complied with the law and if not, the nature of the failures.

The review examined fee disclosure statements (FDSs) and renewal notices (RNs) issued by 30 randomly-sampled Australian Financial Services (AFS) licensees and their representatives.

ASIC required the 30 licensees to produce samples of FDSs and RNs for assessment. It collected and 1,496 FDSs and 373 RNs along with fee disclosure policies and procedures.

It found that more than half of licensees did not have effective processes to remind them when RNs are due or to turn off ongoing fees.

ASIC also commissioned a compliance consultant to review 176 FDSs in detail to determine whether the contents complied with legal requirements.

Of those FDSs reviewed in detail:

• 80 per cent did not include all the required information about services that clients were entitled to receive;
• 73 per cent did not cover all the information about services that clients received; and
• 44 per cent did not include the amount of each fee paid by the clients.

Non-compliance by fee recipients ranged from less material and technical breaches to more significant breaches, ASIC said.

The review also found that 7 per cent of the FDSs required to be given to clients by law were not given. In 35 per cent of the instances when an RN was required, an RN was not given.

ASIC commissioner Danielle Press said the findings have raised concerns about industry practices in relation to fee disclosure to clients.

“Our review has found widespread non-compliance with fee disclosure obligations across the sample of AFS licensees and their representatives, suggesting that compliance with the FDS and RN obligations may be an industry-wide problem,” Ms Press said.

“Consumers are at risk of receiving inaccurate fee disclosure statements or, in some cases, none at all. This is a timely reminder that while disclosure alone is not enough as a consumer protection mechanism, transparent and timely disclosure still has an important role to play.

“The 30 licensees in our review have been advised of our concerns, and we are strongly urging all AFS licensees to immediately take steps to improve the robustness of their compliance measures.”

ASIC also noted that it is investigating a number of other advice licensees for potential breaches of the FDS and RN obligations. It will determine whether court action is appropriate at the end of these investigations.

The legal obligation to provide FDSs to clients was introduced as part of the Future of Financial Advice reforms in 2013.

Adrian Flores

Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.

You can contact him on [email protected].