FDS advice for planners

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From 1 July advisers will be required to send out Fee Disclosure Statements (FDS) to clients, which not only identify the fees they received for the past 12 months, but also show that the services they agreed to provide to the client, were actually provided.

While many advisers have told Wealth Professional that the statements are costly and unnecessary, legal firm The Fold says there is a simple way for advisers to effectively comply with FDS requirements.

According to the firm, an engagement letter that clearly lists their services will make the process simpler for advisers, as it can be replicated in the FDS with a tick or a cross to show whether or not the service was provided.

Advisers that incorporate the FDS process into their Statements of Advice (SoA) aren’t using the best approach, and will struggle to keep up with new obligations if they don’t change their methods, says Claire Wivell Plater, managing director of The Fold.

“It’s not a great approach because as well as cluttering up the SoA, disclosing fees at this stage of the process is, in many cases, too late,” she says. “For advisers to comply with the best interests duty, the client needs to understand and agree to any limitations on the advice in advance.”

She said these processes would be an easy change to make for advisers with clients they are actively servicing, but it will be more difficult for clients with whom the adviser has had little recent contact; disengaged clients might decide they don't need or want to pay for on-going services.

Plater said there was an even more important reason to put Fee Disclosure Statements in engagement letters, to protect advisers’ remuneration. “After FoFA, the client will be responsible for paying the fees. Even if they’ve provided a direct debit authority, they can revoke it at any time. An effective engagement letter will give advisers a contractual right to recover their fees.”

Plater’s top three tips for cutting your costs are:

  • designing fee structures and service packages that are easy to report against
  • automating the production of the FDS as much as possible, and;
  • combining the provision of the FDS (and opt in if it becomes a reality) with  client reviews

Will incorporating your FDS into an engagement letter make things easier for you?

More stories:

Fee Disclosure Statements still top priority for planners

Conflicted remunerations – know where you stand

FDS knowledge "incredibly low"

  • Leanne on 7/03/2013 9:47:20 PM

    The difference is conservative accountant that you are putting people's past into black and white and a financial planner is helping people create their future. We don't have their information to document and organise, we work with them to help them indentify and achieve their goals. If we are not doing it to their satisfaction they have the right to leave. Disclosing in a third manner information that they already have on a set date isn’t going to make the people who already don’t read the first two ways more proactive or informed. It is just another cost and burden.
    A client who walked in today to hand over his claim form reminded me that the people who may suffer the most are the ones who probably need us the most. He had 4 super funds when he became too ill to work so he rang the three industry funds to get the surrender forms as he was over 60 but called into our office to request them.
    After asking him a few questions it became evident he should be investigating what cover he had consequently we were able to assist him to get income protection benefit for 2 years and a few small total and permanent disablement claims.
    He has referred his family and friends and is very thankful that even though he hadn’t seen us for 10 years as the small account he had which paid us less than $20 per year didn’t justify a regular service was the reason he and his wife still have a future.
    I just hope people like him in the future will have somewhere to go rather than a call centre that just sent out the surrender forms.

  • Conservative accountant on 7/03/2013 10:28:00 AM

    Hi Pat In my capacity and in that case you have to have a good idea what it will cost you to do the work based on prior experience for example. We have this problem all the time and will inform the client about the situation as it unfolds and talk to them about it. With legislation changing all of the time sometimes it is difficult to quote with certainty however I suppose you lose some and win some but it may be a disaster if you do not inform the client. I do not pad as was suggested (not by you) especially with normal tax arrangements. A lot of time is spent in developing a budget and allocating what you think is the appropriate time to each segment. This budget goes before at least one other person in the practice who signs off each time a job is done. It is difficult sometimes and time consuming but creates a template for next time. In that instance above you may be entitled to the fee if the fee covers the total job. If it has been segmented into various steps and the client wants it billed that way you may have a problem. Once again discuss with the client. If they move on or argue you may have to bite the bullet. Once again we are upfront with the client. If you are a good financial planner and they think the advice is value they will pay you and come back.

  • Conservative accountant on 7/03/2013 10:09:42 AM

    Lets get real it all comes down to how you are brought up and your integrity ethics etc etc. I try hard to do the right thing and the engagement letter is to protect you also.

  • Pat on 7/03/2013 8:51:29 AM

    Matthew, further to Let's Get Real's valid arguments, should the FDS disclose to the client the services that were offered but not actioned by the client due to inattention? Or what if the provision of that service, say an Estate Planning review, occurs just after the anniversary due to no fault of the adviser, will they be entitled to a refund? What if my retainer of, say, $5,000 that typically covers X,Y, Z, but last year, Z was not required, but there was considerably more time spent on X. How is that to be dealt with?

    My main point is that the FDS is going to make everyone focus on the minutiae rather than whether the client is receiving value and the adviser is doing their job giving the client the best probability of achieving their objectives.

  • Let's Get Real on 6/03/2013 6:52:56 PM

    Matthew, I support fixed fee engagements via an Engagement Letter.....in fact not only do I support it but thats what I do, upfront and ongoing. As for the comment on "inefficient billing", are you serious?... this is just a contradiction. Refer back to GAB's comment (which I didn't see before my last post but agree with), ripping people off is ripping off.....no matter how you choose to 'disclose' it. I know that if I was on a fixed fee retainer myself personally I would be ensuring that I got the services I was paying for......and I would prefer this than to be scared to talk to the service provider because I could hear the timer ticking in the background. If you are signed up via an Engagement Letter which discloses services and the costs of them, it is hard to see how your argument holds that clients wont know what they are being charged. If you take out a gym membership for an annual fee via an agreement/contract but then dont use it because your too busy to go, should you get your money back if the gym was there and equipped ready for use? It may be entirely the clients fault that they cant make 1 of the 2 planned review meetings, should they get their money back from an agreed annual retainer despite the planner being available? No, i think the clients will eventually see that they are not getting value and move on but it would be hard to say they didn't know what they are paying for. As for clients who have not been formally engaged in this fashion, I can see your point and agree.

  • Matthew Lock on 6/03/2013 2:33:06 PM

    Hey LGR, that's a "race to the bottom" arguement...I'd rather an inefficient billing process to one where I have no idea what I'm being charged and what work is being done to justify it...while no disclosure system is perfect...removing the ability for clients to make a judgement call on value they are receiving i.e. matching of fees to effort is no longer acceptable.

  • Let's Get Real on 6/03/2013 1:34:47 PM

    Hey conservative, are they the same engagement letters that promote inefficiency and "padding" as they are based on hours to get the job done which 'will be billed from time to time' and barely ever meet the original estimate owing to over-runs?

  • Matthew Lock on 6/03/2013 1:33:31 PM

    Leanne, I see your point and I sympathise. Unfortunately however neither an SOA or retainer agreement are able to reveal to the client the services that they didn't utilise during the course of the ongoing relationship with the adviser but for which they have been charged...again the actions of the "money for nothing and our bps for free" brigade have poisoned the well for honest professionals like yourself…and the only way to stop it happening again and again is for honest advisers to take every opportunity to CALL THEM OUT whenever they see sell interest being dressed up as something else on these blogs.

  • GAB on 6/03/2013 1:08:10 PM

    Matthew, that's all good with regards the Law Society....however i have yet to see a solicitor provide an upfront costing for a service apart from maybe a will or power of attorney. I just had client get his bill from a law firm i referred to him $1600 for a basic will...was not disclosed upfront. I know three people going through custody battles and/ or divorce. They are all now just about broke, and the bills keep coming in. The file gets closed unless they pay. I would not be using the legal fraternity as an example of how to run an ethical financial planning practise...full stop

  • Leanne on 6/03/2013 12:00:23 PM

    I think you have both missed the point.
    I don’t think most advisers have an issue with disclosing fees as we already disclose them in our SOA’s and our Review Service Agreements.
    The issue we have is that we now have to disclose in a third way in addition too the current two and we have to disclose the third way on the anniversary date rather than at a time that suits the client to do the review.
    This means that my staff have to prepare for the appointments we have in a month and the also add an additional task of preparing and sending out information our clients already have when they are not coming in for a few months as they are on holidays or want to align their review with a life changing event such as retiring or qualifying for Centrelink.
    It is the lack of flexibility and the tripling up that is making us winge.

  • Matthew Lock on 6/03/2013 11:01:17 AM

    Good point CA...with all the professions increasingly competing with financial planners it is beyond me why some segments of the industry are dragging the chain on this.

  • Conservative accountant on 6/03/2013 10:43:09 AM

    Accountants have been doing engagement letters for years as part of their code of conduct

  • Matthew Lock on 6/03/2013 10:10:59 AM

    Good advice Claire...if planners want to see what lawyers have to disclose to clients regarding fees have a look at this link to the NSW Law Society.

    While I'm not suggesting this disclosure regime will easily translate into a finacial planning business, I think it is a very good benchmark...my view is... forget meeting the new FDS regulations...exceed them!

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