Ongoing fee arrangements – consent, consent, consent

The big-ticket item for advice licensees resulting from the DBFO Act is the changes made to ongoing fee arrangements (OFAs).  New provisions relating to OFAs come into effect from 10 January 2025.[i]  An OFA entered into on or after 10 January 2025 must comply with the new requirements.  As most of us go into shutdown over Christmas / New Year, I imagine you will want to get your ducks in a row, with new processes and templates ready to go, prior to Christmas.

For OFAs entered into before 10 January 2025, special transition arrangements apply.  These, like many things financial-services-law, are confusing.  Let’s look at the requirements for new OFAs first and then come back to existing ones.

New OFAs

For new OFAs, there are new provisions relating to termination and renewal.  As is well known, Fee Disclosure Statements (FDSs) will go.

Goodbye FDSs

FDSs have been in play since the FOFA reforms in 2013.  Ms Levy felt that FDSs could go because, when fees are charged from a client’s product account, the client will have visibility of the fees that have been charged.  She also said that she had been told, and accepted, that advice licensees were doing more to satisfy themselves that advisers can point to evidence of services provided to clients.

Hello consent

Under the DBFO Act reforms, FDSs and the old OFA renewal requirements will be replaced with new consent requirements relating to entering into an OFA and paying fees.  I am going to call this type of consent OFA Consent.  There have also been modifications to consent required when OFA fees are paid out of an account with the licensee or an account with a third-party product provider.  I am going to call this kind of consent Fee Deduction Consent.  When you take into account the upcoming insurance commission consent requirements, you will see that there is one big recurring theme in the DBFO Act: consent, consent, consent!

OFA Consent

The provisions state that an OFA terminates if the client has not given written consent complying with the requirements.[ii]  They don’t explicitly say that consent is required before an OFA can commence but if an OFA would automatically terminate without it, that effectively means you have to get OFA Consent for it to start.  In other words, an OFA can’t start without OFA Consent.

Before you get OFA Consent, for the OFA Consent to be effective, you must disclose to the client, in writing:

• the name and contact details of the person who is the fee recipient under the OFA;
• an explanation of why the fee recipient is seeking the consent;
• the maximum period until the consent will cease to have effect;
• information about the services the client will be entitled to receive under the arrangement during that period;
• for each ongoing fee that the client will be required to pay under the arrangement during that period:
  • the amount of the fee; or
  • if the amount of the fee cannot be determined at the time of disclosure, a reasonable estimate of the amount of the ongoing fee and an explanation of the method used to work out the estimate;
• the frequency of the ongoing fees during that period;
• a statement that the OFA can be terminated at any time;
• a statement that the arrangement will terminate, and no further advice will be provided or fee charged under it, if the consent is not given;[iii] and
• the date on which the arrangement will terminate if the consent is not given.[iv]

There is scope for regulations to be made which add other items to this list.  The DBFO Regulations did not make any additions to this list.

You may be wondering what you would record as an explanation of why the fee recipient is seeking the consent.  I would say that consent is being sought in order to confirm that the client consents to enter into or renew the OFA (as applicable) and consents to the ongoing fee.

Once you have made your written disclosure, you need to obtain the client’s OFA Consent in writing.  That consent must:

• include consent for the OFA to be entered into or renewed (as applicable);
• include consent for the fees to be charges to the client (as disclosed to them); and
• be signed and dated by the client.[v]

Keep the OFA Consent or a copy of it. [vi]

My approach would be to include your disclosures and the client’s OFA Consent in the one document.  You provide the form populated with the disclosures, have the client provide the specific consent required and return the form to you, and you each keep a copy.

Forms approved by Minister

Keep in mind, though, the DBFO Act has given power to the Minister (this is an appropriate Minister in the Government) to approve one or more forms for giving consent, relating to:

• entering into an OFA;
• renewing an OFA;
• deducting an amount in respect of ongoing fees from an account; and
• arranging to deduct an amount in respect of ongoing fees from an account.[vii]

You’ll notice that this list covers both OFA Consent and Fee Deduction Consent.  I’ll tell you more about Fee Deduction Consent in a moment.

If the Minister approves a form for giving consent, the consent must be in the approved form.  Given we have not heard any word of the Minister intending to approve a form, it seems safest to proceed on the basis that you will need to prepare your own forms (whether or not based on commercially available templates).

Combining notices and forms

It is also interesting to note that you are able to combine more than one notice or form under the OFA requirements.[viii]  So, for example, you could use a single form to obtain both OFA Consent and Fee Deduction Consent

Changes to information in OFA consent

You may, at some point, wonder: what happens if there is a change to something noted in the OFA Consent, after the OFA Consent is given?  Do you require new OFA Consent?  Parliament has kindly given us its view on this, in the Revised EM, saying:

• a change to the services to be provided would require a variation of the consent or a new consent; and
• a change to the name or contact details of the fee recipient (for example, if the fee recipient or client changes their surname by marriage) would not trigger the need to vary or seek new consent – though best practice would be to notify the client of such an update, as a courtesy.[ix] The slight inconsistencies in referring to changes in the client’s details occur in the Revised EM itself, not in our reproduction of it here.

When OFA consent ceases to have effect

The big question is: when does the OFA Consent expire (or, in the words of the DBFO Act), ‘cease to have effect’?

For the client’s first OFA Consent, here’s how it works.  If the OFA Consent specifies a date, it will expire 150 days after that date – but only if that date is earlier than the anniversary of the date the OFA is entered into.  If you attempt to specify a date that is later than the anniversary of the date the OFA is entered into, you will actually be bound by the anniversary of the date the OFA is entered into and consent will expire 150 days after that date.  I know, you are probably thinking: why doesn’t consent just expire on the noted date?  The provisions seem to take inspiration from the existing provisions which also use this rather odd methodology.  For this reason, rather than calling the date on which the 150 days starts something like ‘expiry date’, I would call it ‘reference date’.  Although that phrase is not defined in the DBFO Act, it does appear in the title for this section and I think it is a useful term.

If that first OFA Consent does not specify a date, the date from which the 150 days starts to tick (aka the reference date) is the anniversary of the day on which the OFA was entered into.

For subsequent OFA Consents, here’s how it works.

The reference date is the earlier of the date specified in the most recent OFA Consent (if a date was specified) and the anniversary of the previous reference date.

For both first and subsequent OFA Consents, the OFA Consent will also expire if you obtain new OFA Consent from the client, provided the new OFA Consent is obtained during the period starting 60 days before the reference date and ending 150 days after the reference date.

Regularity of OFA Consent renewal and opportunities for harmonisation

The absolute maximum time that could pass between OFA Consent renewals is 60 days plus 12 months plus 150 days.  This would occur if you obtained OFA Consent renewal early one year (60 days before the reference date) and late the following year (150 days after the next reference date).

Mostly, we expect that, unless you are ‘going early’ to harmonise renewal dates, OFA Consent will be roughly annual.

You can immediately see that you have been given back the flexibility you once had to set anniversary dates, which was removed at the last major round of legislative reforms.  This will allow you to harmonise anniversary dates, meaning you can run more efficient systems.

Note that these parameters for when consent ceases to have effect are drafted specifically in relation to OFA Consent.  However, while they do not apply directly to Fee Deduction Consents, some slick legislative drafting means that Fee Deduction Consents can effectively be treated as being subject to the same timeframe parameters as OFA Consents.  More about this now.

Fee Deduction Consent

There are two types of Fee Deduction Consent.  One is where the ongoing fee is paid from an account the client holds with you (not being a credit card account or basic deposit product).  The other is where you arrange for deduction of ongoing fees from an account the client holds with a third-party account provider.  Again, credit card accounts and basic deposit products are not included here.

The requirements set out in the DBFO Act are largely consistent with those which have until now appeared in ASIC Corporations (Consent to Deductions – Ongoing Fee Arrangements) Instrument 2021/124.  This is deliberate as the aim was to enshrine these requirements in the Corporations Act 2001 (Corporations Act).  One notable difference is that the Minister can prescribe a form for these consents (see above).

When it comes to Fee Deduction Consent, if you want to be able to deduct the fee (where the account is with you) or arrange for its deduction (where the account is with a third-party product provider) you must:

• make the disclosures otherwise required for OFA Consent (set out above);
• get specific consent by the client for the ongoing fee disclosed as part of the above disclosures to be deducted from the account;
• make sure the Fee Deduction Consent specifies the name of the account holder and the account number;
• for each amount to be deducted, make sure that the Fee Deduction Consent specifies:
  • the amount to be deducted; or
  • if the amount to be deducted is given, a reasonable estimate of that amount and an explanation of the method used to work out the estimate; and
• get the consent signed by the account holder;
• ensure the consent is dated.[x]

Again, more could be added to this list via regulations but this has not happened to date, even in the DBFO Regulations.

As is already the case, you need consent from all the account holders.  A special note has been inserted in the relevant provision of the Corporations Act to remind readers of this.  This applies regardless of who has ‘authority’ on the account. [xi]

When Fee Deduction Consent ceases to have effect

Fee Deduction Consent has its own ‘cease to have effect’ provisions.

These provisions say that a Fee Deduction Consent ceases to have effect 150 days after the anniversary of the day the OFA was entered into. [xii]  The exceptions to this are if:

• the OFA is terminated, the consent ceases to have effect at the time the OFA terminates; [xiii] or
• a new consent is given in relation to the OFA for the purposes of account deduction or arranging for deduction from an account, at the time the new consent is given.[xiv]

One or more accountholders may also vary or withdraw consent, by giving written notice of this to the fee recipient.[xv]

Regularity of Fee Deduction Consent renewal and opportunities for harmonisation

At first glance at this, I panicked and thought that we were looking at a completely different set of timeframes for Fee Deduction Consent compared to OFA Consent – timeframes which did not allow for harmonisation.  For example, the Fee Deduction Consent provisions are hooked permanently to the anniversary of the day the OFA was entered into and not to a ‘reference date’ which can be reset.  Plus, there is no 60-day window prior to the anniversary date in which Fee Deduction Consent can be obtained.  But it turns out this is not the case, thanks to a clever domino effect in the legislation.

OFA Consent must be obtained in the window starting from 60 days before to 150 days after the reference date for an OFA.  If this does not happen, the OFA automatically terminates. [xvi]  Termination of the OFA triggers termination of the Fee Deduction Consent.  If you always coordinate obtaining Fee Deduction Consent with obtaining OFA Consent, and always comply with the OFA Consent timeframe requirements, this should cause you automatically to comply with the Fee Deduction Consent timeframe requirements and to meet Parliament’s goal that Fee Deduction Consent should be obtained ‘each year’.[xvii]  If you harmonise OFA Consents, you can only do this by bringing forward a reference date from the original anniversary date, which means the Fee Deduction Consent should never be given more than 150 days after the anniversary date.

If the Fee Deduction Consent ceases to have effect for any of either of the bulleted reasons listed above, you must notify the account provider within 10 business days of the consent no longer having effect.[xviii]

If the Fee Deduction Consent is withdrawn or varied, you must give written confirmation to the accountholder that their notice was received and provide a copy of their notice to the account provider.  Both these actions must occur within 10 business days of you receiving the account holder’s notice.

How consent failures can terminate an OFA

So, how does an OFA terminate?  Firstly, you can forget about the old provisions about whether a client does or does not renew.  An OFA has an inbuilt condition (thanks to the DBFO Act) that it will automatically terminate if OFA Consent has not been given in accordance with the provisions,[xix] or if OFA Consent has been given, has ceased to have effect, and no further OFA Consent has been given in accordance with the provision.[xx]

A similar condition is built into the OFA in relation to Fee Deduction Consent: if you deduct or arrange for the deduction of a fee or accept a deducted fee, and you don’t have consent meeting the requirements, this means automatic termination.  This automatic termination is actually already in place under the existing regime but will be housed in new provisions in the new regime.  As noted above, coordinating Fee Deduction Consent with OFA Consent timing requirements should ensure that you meet the timing requirements for Fee Deduction Consents (see above).

In other words, meeting both OFA Consent and Fee Deduction Consent requirements is essential to keeping an OFA alive year after year.

Fees paid after termination

In both cases, if the client pays an ongoing fee or gives consent for deduction or arranging of the deduction of a fee, after an OFA has terminated automatically, then this is not considered to ‘undo’ the fact of the termination.  If the client pays a fee or one is deducted pursuant to late provision of consent in these scenarios, you are not obliged to refund the payment to the client.[xxi]

How the client may terminate an OFA

Provisions regarding how a client may terminate an OFA look similar to the existing ones but have been fleshed out a little.  You need to know that:

• under the DBFO Act, there is a condition (whether you like it or not) that the client may terminate the OFA at any time;
• a client may terminate the OFA by giving notice to you in writing;
• if the client gives you such a notice, the OFA terminates on the day the notice is given; and
• any condition you put in the OFA (or elsewhere) requiring the client to pay an amount on terminating the OFA is void to the extent that the amount exceeds the sum of:
  • any liability that the client has accrued but not satisfied under the OFA prior to termination; and
  • the costs you incurred solely and directly because of the termination.[xxii]

You may have picked up that the drafting of the provisions does not anticipate what happens if the client gives you a notice that they wish to terminate on a date in the future.  If you read the provisions literally, the OFA would terminate on the date the notice is given regardless of this.  However, I expect that ASIC and Courts would take the approach that, where a client clearly stipulated a future date for termination (and not the date on which the notice was given), the date of termination would be that future date.

Fees and services after termination

On termination, for whatever reason, you must not charge an ongoing fee under the OFA.  If the continued provision of a service under the terminated OFA is dependent on continued payment of an ongoing fee, on termination of the OFA, the obligation to continue to provide the service also terminates.[xxiii]

Existing OFAs – when they transition to new requirements

So… that’s what applies on and from 10 January 2025 in relation to new OFAs.  Eventually, OFAs in place before 10 January 2025 will also be subject to those requirements.  Let’s now look at what happens to OFAs in place prior to 10 January 2025.

All the new requirements will apply to an existing OFA from the anniversary of the day it was entered into – that is, what is known as the ‘anniversary day’ under the existing regime.  But we are talking about the first anniversary day that occurs after 10 January 2025.  This is known as the ‘transition day’.  But the requirements are modified slightly for these existing OFAs, as set out below.

Where an existing OFA has an anniversary day prior to 10 January 2025, the current FDS and renewal requirements continue to apply in relation to that OFA, even though these will, in some cases, be met by you providing the FDS and obtaining consent to renewal after 10 January 2025.  This might occur for example, where an OFA has an anniversary day in December.

Consent for renewal and ongoing fees that meets the new requirements must be obtained from the client in the period starting on the later of 10 January 2025 and 60 days before the anniversary of the day the OFA was entered into and ending 150 days after the anniversary of the day the OFA was entered into.  Consider the first anniversary day that falls after 10 January 2025 as being the reference date for these OFAs.

For subsequent OFA Consents and Fee Deduction Consents, you can set a new reference date and, if you don’t, the anniversary of the date the OFA was entered into will be the reference date.

As for new OFAs, if you obey timing requirements in relation to OFA Consent for Fee Deduction Consent as well, you will meet requirements for both.

The following provisions apply from 10 January 2025, to existing OFAs, in relation to consents being given under the new requirements:

• the ability of the Minister to prescribe a form; and
• the ability for forms to be combined.

The obligation not to charge a fee after the OFA terminates moves from one section to another in the Act, from 10 January 2025.  The provisions stating that there is no obligation to continue providing the OFA services after the OFA terminates will move sections from the transition day for the existing OFA.

OFAs on sale of business

Unlike for insurance commission consent, the DBFO Act does not specifically state that OFA Consent and Fee Deduction Consent endure when a financial advice business is sold.  However, the OFA requirements do specifically contemplate that the rights of a fee recipient under an OFA could be assigned to another person.

How OFA documents may be given

Lastly, the DBFO Act has made changes that mean documents that need to be given under OFA requirements can be given in any one of a number of ways:

• by giving the document in a physical form;
• by giving the recipient sufficient information in physical form to allow them to access the document electronically;
• by sending the document in electronic form by means of electronic communication;
• by sending sufficient information in electronic form, by means of an electronic communication, to allow the recipient to access the document electronically; or
• by making the document readily available in electronic form on a website.[xxiv]

Where the document is provided electronically or is in electronic form, it must be readily accessible so as to be useable for subsequent future reference.[xxv]

These provisions apply to new OFAs from 10 January 2025 and to existing OFAs from their transition day.

Changes to civil penalties

Also note that some civil penalty provisions have been removed from the DBFO Act – specifically those relating to the requirement to, where the client withdraws or varies Fee Deduction Consent, within 10 business days, give:

• written confirmation to the account holder that the notice was received; or
• a copy of the account holder’s notice to any third-party account provider.

The requirements still apply.    A breach of these provisions was not previously deemed significant despite them being civil penalty provisions, as a special regulation exempted breaches of these particular provisions from being deemed significant on the basis of civil penalty.[xxvi]  A breach of these provisions will now not be deemed significant simply because the provisions are no longer civil penalty provisions.  However, as was previously the case, a breach of the provisions could still be reportable on other grounds.

This applies from 10 January 2025.

Some things are the same

Despite us ushering in an era of many OFA reforms, take note that key concepts remain that same.  These include the definition of an OFA and a ‘fee recipient’.  The obligation to keep records of compliance with the OFA (including deduction and arranging for deduction) requirements also still stands.[xxvii]  And documents can still be signed physically or electronically.[xxviii]

What you need to do

As well as updating your documented OFA policies and procedures, and educating your advisers, make sure you:

• update any reportable situation tool used by you to reflect the removal of civil penalties from some provisions and to reflect that some provisions have moved to new section numbers in the legislation; and
• update your OFA templates to reflect new automatic termination provisions.

ASIC guidance

Since writing this article, ASIC has released Information Sheet 286 FAQs: Ongoing fee arrangements and consents and Information Sheet 287 FAQs: Non-ongoing fee requests or consents.  It would be prudent to look at these when preparing your processes for the new OFA regime.

Author: Samantha Hills (Partner)

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[i] These provisions start the day after royal assent (so, 10 July 2024) but then the DBFO Act inserts provisions delaying the start date until six months later.  These appear in the new sections 1708 and 1708A of the Corporations Act 2001.

[ii] Section 962F of the Corporations Act 2001.

[iii] For initial entry into the OFA, you might like to add that the OFA cannot commence until consent is given.  This is because no consent means automatic termination, therefore effectively preventing a new OFA from starting where no consent is given.

[iv] Section 962G(2) of the Corporations Act 2001.  As the initial OFA will not even start before consent is received, this statement is redundant for the initial OFA.  But you will need to include it each time the OFA is to be renewed.

[v] Section 962G(1) of the Corporations Act 2001.

[vi] Sections 962G and 962X(1) of the Corporations Act 2001.

[vii] Section 962Y of the Corporations Act 2001.

[viii] Section 962YA of the Corporations Act 2001.

[ix] Paragraph 1.114 of the Revised EM to the DBFO Act.

[x] Section 962T of the Corporations Act 2001.

[xi] Sections 962R(3) and 962S(7) of the Corporations Act 2001.

[xii] Section 962V(1)(a) of the Corporations Act 2001.

[xiii] Section 962V(1)(b) of the Corporations Act 2001.

[xiv] Section 962V(1)(c) of the Corporations Act 2001.

[xv] Section 962U of the Corporations Act 2001.

[xvi] Section 962F of the Corporations Act 2001.

[xvii] Explanatory Memorandum, Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020, page 11.

[xviii] Section 962V of the Corporations Act 2001.

[xix] As previously noted, the OFA effectively cannot start if consent requirements have not been complied with so the only meaningful point here is that, if consent has ceased to apply and has not been properly renewed, the OFA terminates.

[xx] Section 962F Corporations Act 2001.  In the relevant provisions, 962F and 962WA of the Corporations Act 2001, the drafting in each second subparagraph suggests that the client has a choice whether the OFA terminates (by use of the phrase ‘the client’s rights’) but the first subparagraph clearly stipulates that the OFA terminates on the failure to comply with consent requirements.  I favour an interpretation based on the first subparagraph in each case, mostly because I think it would be confusing for a client (and you) if the client had to decide whether to ‘exercise their rights’ to terminate.

[xxi] Sections 962F(3) and 962WA(3) of the Corporations Act 2001.

[xxii] Section 962J of the Corporations Act 2001.

[xxiii] Sections 962Z and 962ZA.

[xxiv] Section 110C(1) and (3)(da) read in conjunction with section 110D(1) of the Corporations Act 2001.

[xxv] Section 110D(2) of the Corporations Act 2001.

[xxvi] Regulation 7.6.02A(2) Corporations Regulations 2001.

[xxvii] Section 962X Corporations Act 2001.

[xxviii] Section 110A of the Corporations Act 2001.