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?

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