What if clients don’t want an annual review?

In response to a question on notice from Coalition MP and former financial adviser Bert van Manen in the parliamentary joint committee on corporations and financial services, ASIC noted that a client’s refusal to engage in an annual review did not let a licensee off the hook from a potential remediation of ‘fees for no service’.

“Can you please advise what regulatory guidance ASIC has provided in the past with respect to a licensee’s requirements to monitor the provision of agreed services (i.e. ‘fee for no service’) and what should happen when services are not provided, including where a client declines to have an annual review?” Mr van Manen asked.

While laws are currently before Parliament that would see advisers obliged to provide fee renewal documents to clients annually, and to switch fees off if they are not able to gain the client’s consent, the regulator responded that advice relationships entered into before the laws came into effect could still trigger a remediation if the client was not being engaged annually.

“What should happen when a client declines to have an annual review depends on what services the client’s ongoing agreement included,” ASIC said.

If the service agreement included an annual review, clients needed to be refunded for this regardless of whether they had been offered the review and refused it, the regulator added.

“If agreements entitled customers to an annual review, and the customer had declined the annual review in consecutive years, a customer centric approach would involve refunding some fees because consecutive declines may indicate that the ongoing service arrangement is unsuitable for the customer,” ASIC said.

The regulator pointed to its Information Sheet 232 on fee for no service remediation, released in mid-2018, which stated that “in conducting [a] review and remediation program, the licensee must act efficiently, honestly and fairly, and should take a client-focused approach”.