Despite an overall positive outlook from advisers for 2013, 95% still see challenges posed by FoFA reforms, and FDS obligations make up a large portion of the concerns.
The top challenges for planners are around client opt-ins, administering fee disclosure requirements, and the compliance burden arising from FoFA, according to Investment Trend’s Planner Business Model Report.
The FPA has already highlighted that FDS requirements are placing onerous obligations on planners, and will try to stop their retrospective nature as well as getting greater flexibility around the 30-day provisions.
Dante De Gori, general manager of Policy and Government Relations, says that from the beginning, a major analysis has been missing.
“You need to go back to fundamentally look at what obligations do advisers have today, what’s missing, and how can you expand or correct them to cater what the FDS is designed to do,” he says. “If the outcome is then the FDS that’s fine but that analysis was never done.”
De Gori says that it’s not about avoiding the FDS, but integrating something that sits on its own, into the current practises and obligations that advisers already have.
FPA CEO Mark Rantall says that fee disclosure statements and opt-in were effectively made redundant by banning commissions, making fees transparent and negotiating directly with clients.
“This additional requirement as something that the adviser has to do is very hard to systematise, particularly where it has this retrospectivity to it.”
Investment Trends Senior Analyst Recep Peker said that in previous years, opt-in had been the major concern for planners, and how they would be able to provide affordable advice to lower balance clients.
“They have now finally awoken to the administrative burden posed by the annual fee disclosure requirements, with the proportion citing this as a challenge jumping from 12% last year to 48%,” he said.
According to the FPA, the flexibility of the FDS requirements is a big issue, particularly when client reviews don't align with when the FDS is due, and the 30-day provision needs to provide more space.
Justin Brand, owner of Arc Financial Consulting still has questions around the FDS, which he put to planners on social media.
“How many advisers do you think are listing commission they receive on their FDS?” he asked readers. “And do you think the FDS will improve the regularity of reviews and quality of ongoing service? Will clients even read it?
“Should a client with an ongoing advice fee too small to justify a review be charged a fee at all?”
He said that some advisers had been ‘agonising’ over what fees should be disclosed, rather than disclosing everything they are paid. “In addition, there seems to be a focus by some of us on how much it costs to disclose the fees, but if we can’t work it out easily, how can the client know what they are paying?”
For planners looking to get rid of the FDS altogether, he says an annual review with a renegotiated advice fee within 12 months would negate the need for the document.
Are you sorted with your FDS obligations, or do you still have questions? Share your thoughts below.
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