The Australian Securities and Investments Commission is commencing a review of compliance with its rules that govern the issuance of fee-disclosure statements and renewal notices in the financial advice sector.

ASIC has received a number of so-called breach reports from firms and these indicate that they may have failed to comply with its requirement to issue such notices in line with Australia's Future of Financial Advice (FOFA) reforms of 2013, which consisted of amendments to the Corporations Act 2001, which ASIC enforces. ASIC is investigating and expecting to take enforcement action if it finds anything. It believes, moreover, that the volume and range of breach reports indicates that "systemic non-compliance" might be present. It is therefore going to inspect firms 'across' the whole industry - this might indicate that it will inspect hundreds of firms, or it might mean that it will only take a smattering of samples from small, medium and large advisors. Its only statement about the nature of the inspections is that it "will test compliance with these obligations across a range of small and large licensees and will provide our findings in 2019." Some enforcement actions, however, are already in the pipeline and it is already forcing various firms to 'remediate,' i.e. to reform their compliance systems and controls.

ASIC will examine the extent to which financial advisors, or 'advice licensees':

• issue fee-disclosure statements and renewal notices to customers;
• issue fee-disclosure statements and renewal notices in the time frames set out by the law;
• include the required content in the fee-disclosure statements;
• ensure that the content of the fee-disclosure statements is accurate, in describing the reasons they have for charging customers money and the services that those customers have received;
• have appropriate procedures in place to ensure that fees for continuing services are discontinued when the arrangements are nullified as a result of firms failing to comply with the rules that insist on fee-disclosure statements and renewal notices.

ASIC is always looking for evidence of "fees-for-no-service," the scandal that the Financial Services Royal Commission uncovered so damagingly for the Australian financial sector this year, and fee-disclosure statements and renewal notices are in its sights. The point of these disclosures is to allow customers to gain a better understanding of the advisory services for which they are being charged and the services they are entitled to receive and to persuade them to actively 'opt in' before they are charged continual service fees - this latter measure being a way of reducing the likelihood of firms levying fees on "passive or disengaged" customers.

Statutory obligations

Under s962G Corporations Act 2001, customers who have made "ongoing fee arrangements" with their advisors are entitled to fee-disclosure statements at least every 12 months. Section 962H says that these statements must contain details about the amounts of "ongoing fees" that the customers have paid, plus information about the services they were entitled to receive and the services they actually received.

Under s962K, customers with "ongoing fee arrangements" must receive written notices every two years so that they may renew those arrangements. Section 962K specifies that if the client either opts out, or does not actively opt in, the arrangement ends. Section 962F says that if an advisory firm fails to comply with its obligations in this area, it is no longer entitled to charge the client(s) in question any "ongoing service fees." Civil penalties await any advisory firms that fail to comply.