Fee Disclosure Statement

Fee Disclosure Statement

by Christine Hopper

Why Fee Disclosure Statements

Fee Disclosure Statements were introduced as part of the Future of Financial Advice reforms in response to the 2009 Inquiry into Financial Products and Services in Australia. The Fee Disclosure Statements address the lack of transparency and accountability regarding the payment of ongoing financial advisory fees noted by the Inquiry.

Fee Disclosure Statements are a new form of annual statement coming from your financial planner.

The purpose of your Fee Disclosure Statement is to tell you clearly how much you are paying for ongoing financial advice and what services you were entitled to receive and what services you did actually receive from your financial planner over the last year.

The Fee Disclosure Statement must show the amount of fees charged as a dollar amount.
Fee Disclosure Statements are an updated summary of your previous advisory service agreement and ongoing fee agreements.

The Fee Disclosure Statement is not new information. Previously you had agreed to an ongoing fee agreement and/or an advisory service agreement which included a fee scale.
Thus, you should have been able to work out the amount of fees and charges that you paid last year from your investment statements. But did you bother yourself to track down the information and do the calculations.

Before you invested money, your financial planner would have provided you with a Statement of Advice, the document that included specific investment recommendations for you. Deep in that Statement of Advice were disclosures of the fees and charges to be debited to your investment account and the remuneration of your financial planner.

The amount of each fee, charge or commission was shown as a dollar amount payable in the first year and then a rate for first and later years. The rate could have been written as a percentage of the balance of your investment account or total assets that were ‘under the advice’ of your financial planner.

Some investors entered separate ongoing fee agreements with their financial planners for ongoing investment review or advisory services.

The financial planner could send you an invoice for you to pay for these advisory services directly. Alternatively, your ongoing fee agreement could allow the financial planner to deduct these fees from your investment account.

Some of these fees, charges and commissions were defined as percentages of your investment account balance. Some fees such as ‘account keeping fees’ could be set as a dollar amount to be increased each year with CPI.

Many years later the fees and charges initially agreed with your financial planner are still being paid from your assets.

The Fee Disclosure Statement is now going to remind you each year of just what is being paid to your financial planner from your money. The Fee Disclosure Statement covers both fees and charges deducted from the investments that your financial planner manages and any fees or charges, that you are invoiced for under an ongoing fee agreement.

Thus your Fee Disclosure Statement shows all of the fees and charges that you pay to your financial planner either directly or via deductions from your investment account.

Your Fee Disclosure Statement also lists all of the services that were to be provided to you and the services that you actually received.
For example, your advisory agreement provided for a financial year end report of your investment outcomes and an annual review meeting to discuss your investments.  Your adviser sent the the reports each year but did you find time for the annual review meetings.

Account administration fees and charges paid from your account but not shown in your Fee Disclosure Statement.

Please note that your Fee Disclosure Statement does not include any account keeping fees that are charged by an investment platform. These account keeping fees are intended to cover the costs of administration and accounting, including taxation reporting, for your investment money.

Also any commissions paid to your current, or a previous, financial planner in respect of insurance products or financial products that were ‘sold’ to you are not counted as fees or charges to be shown in your Fee Disclosure Statement.

Now that you have your Fee Disclosure Statement you have a choice.

Your financial planner cannot just continue to charge you for ongoing investment advisory services. Your original advisory service agreement or ongoing fee arrangement, expires after its next anniversary following June 2013.

As from July 2013, you must sign up at least once every two years to continue the financial advisory relationship.

If you have not signed and returned your new advisory service agreement then your financial planner must stop charging you fees. But if you want to continue ‘purchasing’ investment advisory services then you must sign a new advisory services agreement.

You are free to change to a different financial adviser if that is your choice.

Your new advisory services agreement is a new agreement.
So be prepared to negotiate the type and level of services that you want and the fee scale that you are prepared to pay for those services.

You could choose to pay a fee related the work involved in monitoring your investments. Fees based on the size of your investment portfolio might not provide value for the fees charged to you. Many advisers offer fees set in dollar terms for each of the services that you require. The fee for service method helps you align your advice fees and the services that you value.

Financial Care Services operates as a ‘fee for service’ practice. Clients of Financial Care Services are charged dollar amounts of fees for the consultations and advisory services
that the client wants.

If you would like further confidential, independent and professional advice about retirement planning, Centrelink, lifestyle or financial issues please contact Christine Hopper (03) 9808 0338.

Disclaimer: The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before investing any money or moving in to any retirement village, lifestyle community or aged care facility. Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations. © 2013 Financial Care Services Pty Ltd. All rights reserved.
To make an appointment for professional advice, call Financial Care Services
(03) 9808 0338