ONE CLIENT WITH MULTIPLE ENTITIES: WHO RECEIVES THE FEE DISCLOSURE STATEMENT?

Where an ongoing fee arrangement exists between an AFS Licensee or their representative and a retail client, a fee disclosure statement must be given to the client.  The concept of a fee disclosure statement has been widely discussed in the lead up to the commencement of FOFA.  However, the legislation and Regulatory Guide 245: Fee Disclosure Statements ("RG245") fail to provide guidance in relation to the appropriate course of action where a retail client may consist of more than one entity or joint entities.

Consider the scenario where a married couple seeks financial advice from a financial planner.  The couple has a mixture of individual investments and joint investments.  In addition, the couple also has a family trust and a self-managed superannuation fund. 

Who is the client in this situation?  In other words, who should be receiving a fee disclosure statement?  One interpretation is that the couple are clients individually in respect of their individual investments and a client collectively in respect of their joint investments.  The family trust would be a separate client as would the SMSF.  This means that there are potentially 5 separate clients and 5 fee disclosure statements that need to be provided by the licensee.   

In RG245, at paragraph RG245.36, ASIC has provided guidance that the details of fees and services payable under multiple ongoing fee arrangements with one client may be contained in a single fee disclosure statement provided that the information is presented in such a way to allow the client to easily assess the services that they are receiving and the fees that they are paying under each arrangement.  

There is some ambiguity in respect of whether a client has multiple ongoing fee arrangements.  For example, a fee disclosure statement must contain the amount of each ongoing fee paid by the client under the ongoing fee arrangements.  However, if there is only one ongoing fee arrangement, the licensee may simply include the details of the ongoing fees paid in total in contrast with splitting the details of the fees between each of the separate accounts (i.e. individual, joint, trust and SMSF). 

The concept of multiple entities and joint clients creates an administrative burden on licensees.  Whilst ASIC has provided guidance that multiple ongoing fee arrangements with the same client may be contained in one fee disclosure statement, there is no guidance as to whether a separate ongoing fee arrangement with an entity controlled by an existing client can be considered simply another ongoing fee arrangement with the client.  Further to this, any separate ongoing fee arrangements may have been entered into by the client at different times which creates a discrepancy in respect of the date on which the fee disclosure statement is required to be given to the client.  

Required Action

Licensees should consider their fee disclosure statement administrative processes in relation to clients that hold multiple accounts or operate through different entities such as self-managed superannuation funds to ensure that the legislative requirements are met.