The new advice fee consent rules came into effect from 1 July 2021, but will your clients consent?
The new rules require fee recipients to, inter alia, obtain written consent from clients before they can deduct fees from the client’s account, to set out the services that the client will be entitled to receive for the coming 12-month period as well as an estimate of the total fees to be charged and to review ongoing fee arrangements each year.
These requirements relate to the provision of personal financial services for a period of more than 12 months, but there is a 12-month transitional period commencing at the same time for arrangements entered into before 1 July 2021.
It’s clear these changes haven’t been universally welcomed by the industry with the common refrain from practitioners being along the lines of “how many documents does ASIC want clients to sign (with fees disclosed) before they’re convinced the client has provided their informed consent?”. But it is what it is (at least until after the next federal election).
Understandably, the focus of the industry to date has been on the technical and legal aspects of this change because licensees and practices are rightly concerned about their compliance obligations and not putting themselves in a position that attracts adverse publicity and reputational damage.
But a potentially more serious, and possibly unconsidered, impact awaits those who are solely focused on the compliance angle and overlook the possibility that clients will say “no more” and turn the fee tap off. After all, they will be provided an explicit opportunity (and encouraged via your revised FDS) to reconsider all aspects of their relationship every year before consenting to renew (or not).
The commercial implications, either way, are obvious. Each client represents a potential revenue stream that is now further at risk.
So, it makes sense to consider how you can ensure you have the right data and insights that will help avoid unexpected ‘surprises’ when it comes time for each of your clients to provide their annual consent.
It would also be dangerous to ignore that consumers today have more power than ever to decide who they do business with. They are spoilt for choices in pretty much every product and service category you can imagine (including financial advice). They have the means to access information about every service provider right at their fingertips and real power to influence others based on their personal experiences. The stakes are high.
If you were asked what percentage of your clients would enthusiastically provide their annual consent to an ongoing fee arrangement today, what would your response be?
It’s easy to be lulled into a false sense of security based on what has happened in the past. This often occurs when a sense of familiarity overtakes the reality of changing circumstances and expectations. Past behaviours may no longer be the guarantee of future behaviours you are expecting. The rules have changed.
If a client declines to consent to an ongoing fee arrangement based on their perception about critical aspects of their relationship such as trust or value for money, it’s likely too late to change those perceptions after the fact.
It’s better to view your client relationships via your windscreen rather than the rear-view mirror.
From 1 July 2021, fee recipients need to get on the front foot and access relevant data about their client relationships and then take practical action to address any likelihood of a future where the client considers walking away from the relationship.
If you’re interested in having the right data about your client relationships at the right time, schedule a demo of MyNextAdvice.
Dr Ray McHale is CEO of MyNextAdvice Pty Ltd. His company delivers services to advice businesses (financial advice, mortgage broking & accounting) to help them build and leverage strong client relationships to achieve better commercial outcomes. Ray’s company provides consulting & coaching services in addition to MyNextAdvice™, a software as a service platform that delivers a high definition view of client relationships to improve growth, efficiency, & compliance.