AFSLs show widespread non-compliance: ASIC

AFS licensees are consistently failing to provide correct information about advice fees to clients and are potentially still charging fees long after ongoing fee arrangements have been terminated, ASIC has found.

The report, Compliance with fee disclosure statement and renewal notice obligations, focused on whether the fee disclosure documents, provided by 30 randomly selected Australian financial services licensees, provided to clients complies with the law.

The regulator required the licensees to produce samples of fee disclosure statements (FDSs) and renewal notice obligations (RNs) for assessment.  ASIC said 1496 FDSs and 373 RNs were collected and analysed along with fee disclosure policies and procedures. Of those, 176 of the FDSs were passed on to a compliance consultant to review.

Of those 176 FDSs, 80% were found to not include all the required information about services that clients were entitled to receive, 73% did not cover all the information about services that clients received and 44% did not include the amount of each fee paid by the clients.

ASIC said that in 7% of cases that required an FDS to be issued, fee recipients did not provide one. A further 9% were not provided within the required timeframe and 6% could not be determined to have been provided on time.

In 573 instances where an RN was required, 35% of the time clients did not receive one.

Of those reviewed, ASIC said more than half did not have effective processes for reminding them when an RN was due. Meanwhile, more than half did not have effective processes for turning off ongoing fees.

"When reviewing policies and procedures, ASIC found that more than half of licensees did not have effective processes to remind them when RNs are due or to turn off ongoing fees," ASIC said.

ASIC commissioner Danielle Press said the findings have raised concerns about industry practices in relation to fee disclosure to clients.

"Our review has found widespread non-compliance with fee disclosure obligations across the sample of AFS licensees and their representatives, suggesting that compliance with the FDS and RN obligations may be an industry-wide problem."

Press said consumers are at risk of receiving inaccurate fee disclosure statement or in some cases, none at all.

"This is a timely reminder that while disclosure alone is not enough as a consumer protection mechanism], transparent and timely disclosure still has an important role to play," she said.

"The 30 licensees in our review have been advised of our concerns, and we are strongly urging all AFS licensees to immediately take steps to improve the robustness of their compliance measures.

AFS licensees that are or were part of the AMP, ANZ, CBA, Macquarie, NAB and Westpac financial services groups were not included in the review.

"This was because we were already looking at the conduct of these institutions in relation to a range of issues, as part of ASIC's Wealth Management Project that commenced in 2014, and we were keen to test compliance by the broader industry beyond the major banks," ASIC said.

Read more: ASICAFSDanielle Press
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