The expensive DBFO fee disclosure glitch

While financial planners await the next tranche of the Delivering Better Financial Outcomes (DBFO) legislation, many have found themselves having to deal with expensive glitches in the first tranche particularly around fee consent.

What is more, it appears that those glitches are beyond regulatory fixes and can only be addressed by the Government introducing specific legislative amendments.

The result has been an increase in the regulatory burden for financial advisers, including with respect to breach reporting obligations.

The glitches have been identified by the Financial Advice Association of Australia (FAAA) with ongoing fee consents sitting at the heart of the issue in circumstances where the intent of the first tranche of DBFO with respect to simplifying Fee Disclosure Statement (FDS) obligations has hit a number of real-time hurdles.

“The goal was to simplify this regime and streamline it,” the FAAA told its members. “In practice, that has not been achieved and we now have duplication of forms and confusion.”

“The legislative complications, such as the need to include an account number on a fee consent form for enabling the deduction of a fee from a product, even for new accounts, is a flaw in the law that has caused a significant regulatory burden for all parties,” it said.

Discussing the issues with Financial Newswire, FAAA General Manager, Policy & Advocacy, Phil Anderson said he believed the problems had originated from the complexity involved in attempting to translate the pre-existing arrangements and ASIC rulings.

He said it was only after the introduction of the new legislative regime that the problems were fully recognised along with the reality that legislative amendments are required.

Andeson has told members that the core of the problem is that Section 962T of the Act requires that for an Ongoing Fee Arrangement, where a fee is paid from a product, that the account number needs to be included on the client fee consent form. In certain cases, such as a new account, this account number may not be available from the product provider at the time that the fee consent form is completed and signed by the client.

“The core issue is whether the fact that the account number is missing will invalidate the form,” his assessment said.

He said the FAAA, along with others, reached out to Treasury from mid January 2025 to obtain guidance on this issue and seeking a solution to avoid a potential problem.

“Treasury in early February responded to suggest that it was the policy intent to include the account number, that resolving this issue would require changes to the primary law and that instead we should seek regulatory guidance from ASIC.

“We quickly approached ASIC to discuss potential solutions and clarification on the interpretation of the law. We put forward a couple of options and had a follow-up meeting with ASIC in mid April. They confirmed that they did not consider alternative options existed within the primary legislation and were definitive in terms of the need for the account number to be on the consent form when it is signed by the client,” he said.

“We highlighted the potential practical consequences of this interpretation, including the fact that this would potentially lead to the automatic termination of impacted Ongoing Fee Arrangements where the account number was not available at the time of the client giving their consent.”

Anderson said that as a result of what the FAAA believes is a technical flaw in the DBFO legislation, a large number of advisers are doing extra administrative work to address the fact that consent forms have been submitted without account numbers.

“Licensees are doing a substantial number of breach reports relating to this matter, at great cost. Another big factor here is that despite the fact that this problem was known from around the time when the obligation commenced, there is no flexibility in this part of the Corporations Act for either the Minister or ASIC to fix it.

“This outcome should have been avoidable,” Anderson told members.