We all know that one of the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was the prolific nature of receiving fees from clients without providing an appropriate, or in some cases, any service.
Since those findings, most licensees have ensured that authorised representatives are meeting their fee disclosure and fee renewal obligations, and where instances of fee for no service is identified, that clients are compensated.
But what about Licensees?
Licensing fees have been increasing significantly over the last three or four years and the question that needs to be asked is what are you receiving for the fee being charged?
ASIC has recently published a media release on action being taken against a licensee for failures to:
- have in place adequate risk management systems,
- have adequate resources (including financial, technological, and human resources) to provide the financial services and carry out supervisory arrangements,
- maintain competence to provide its financial services,
- ensure that its representatives were adequately trained,
- take steps to ensure that its representatives complied with the financial services laws, and
- do all things necessary to ensure that the financial services were provided efficiently, honestly, and fairly.
The licensee in question, according to the media release, had collected $180,000 per month in licensing fees between 13th March 2019 and 5th October 2021.
The fee itself isn’t in question; the question is what was the licensee offering in the way of service to collect this fee?
The basic functions of an AFSL is to provide services which meet their obligations, as we have outlined above. If there is a fee being collected, fundamentally, it would be expected that the licensee has the frameworks in place to be able to provide these services. Otherwise, what is the fee being collected actually for?
Could it be construed that the licensee is collecting a fee and providing no service?
The fact that ASIC has made comment about the fees being collected in this case doesn’t surprise me as I recall a comment made in past discussions where it was asked of me the service offered by the licensee to the authorised representative for the fee being collected.
It could be assumed, based on the statements in the media release, that ASIC is now highlighting the licensing fees being collected, especially where there are compliance failures of the licence.
What this means for you is that you should be asking your licensee what they are providing you for the fee being charged and whether it meets the minimum obligations that they, as the licensee, have to meet.