ASIC is cracking down on advice fees

Alex Burke,  Senior Writer,  No More Practice Education

ASIC recently provided an update on the reviews into fee for no service being undertaken by Australia's largest financial institutions.

You will likely recall that in the final Royal Commission report, Kenneth Hayne said that any ongoing advice fees charged to clients should be renewed annually. He also said advisers must record (in writing) each year what services a client will be “entitled to receive” under this arrangement and the total fees to be charged.

He added that advisers must neither “permit nor require payment of fees from any account held for or on behalf of the client except on the client’s express written authority to the entity that conducts that account given at, or immediately after, the latest renewal of the ongoing fee arrangement.”

While the major wealth groups being targeted by ASIC have been conducting these reviews, the regulator has noted they have been too slow in conducting reviews pertaining to "systemic FFNS failures" beyond those already reported since 2013.

ASIC commissioner Danielle Press said the reviews have been "unreasonably delayed."

"ASIC acknowledges that they are large scale reviews," she added, "[that] relate to systemic failures over long periods with reviews going back six to 10 years and cover 36 licensees from the six institutions that currently authorise more than 7,000 advisers.

"However, we believe the institutions have failed to sufficiently prioritise and resource their reviews, particularly as ASIC advised them to commence the reviews in mid-2015 or early 2016."

What are the key issues?

Record-keeping

One key issue was that many institutions surveilled had what ASIC described as "poor record-keeping and systems," which has led to cases where customer files can't be retrieved for review.

Given the enormous amount of work involved in going over historical client data to determine misconduct, it’s likely advice businesses - regardless of size - will be investing more heavily in record-keeping systems henceforth.

A lack of customer-centric focus

The regulator also found some institutions have failed to implement “reasonable customer-centric methodologies to identify and compensate customers despite ASIC’s clear articulation of expectations.”

As an example, ASIC has rejected “a few of the methodologies,” which included “a requirement for customers to 'opt-in' to the review and remediation program, and a proposal to assess if there had been a 'fair exchange of value' with customers instead of assessing whether customers received the specific services they paid for.”

Taking a procedural approach

Finally, ASIC said certain advice businesses have taken what it describes as a “legalistic approach to determination of the services they were required to provide. For example, ASIC's view is that if the agreement requires an annual review, the mere offer of an annual review is not sufficient.”

Wrapping it up

It’s likely ASIC will be looking more closely into how advice businesses manage remediation programs going forward. Since 2014, when it began supervising fees-for-no-service compensation programs, 32 licensees have paid or offered about $316 million in compensation.

Given the issues reviewing and reporting other potential cases of FFNS, expect that figure to get higher.

 


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