An adviser who charged two clients $34,000 in hidden fees has returned the money following a decision by dispute resolution service Financial Services Complaints (FSC).
Susan Taylor, CEO of FSC, says it’s okay to charge fees, but it is not okay to “hide them”.
While the case predates the new disclosure requirements introduced on 15 March, Taylor says the new regulations specifically outline that advisers must now disclose all the ways they are remunerated when clients use their services.
“The additional legal duties and licensing requirements financial advisers, including insurance brokers, must adhere to, are a positive step towards improving industry standards,” says Taylor.
“We believe the new disclosure regulations, including disclosing fees, commissions earned, and conflicts of interest, are important in ensuring transparency. The client needs to understand what they are paying for.”
The new disclosure regulations…are important in ensuring transparency…
Taylor tells the story of business owners Tony and Liz who discovered a raft of fees rolled-up into the premiums they paid over three years to late 2019. Taylor says the couple had a document showing premium charges may include a ‘documentation fee’.
“However, when the broker arranged for the renewal of their insurances each year in 2017, 2018 and 2019, the wording on the coverage summaries simply stated, ‘policy charge’,” says Taylor.
It was only in late 2019 when the couple moved to a new insurance broker they discovered their original broker had charged $34,000 in fees.
Taylor says: “Whether fees were included or not was not apparent from the face of the coverage summaries, they all simply had a dollar amount beside the words ‘policy charge’. Tony and Liz had been under the impression their monthly payments were for their insurance premiums only.”
The adviser, who was not named by the FSC, told the organization the fees were justified.
The FSC determined the adviser’s coverage summaries were misleading and in breach of the Fair-Trading Act 1986 and said they refund $34,000 to the couple.
Client needs to understand what they are paying for…
Section 49F of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 – says a member of an approved scheme must comply with the rules of the scheme and binding recommendation can be enforced by the courts.
A spokesperson for the FSC says the adviser had chosen not to pay the compensation his membership with the resolution service would have been terminated and he would not have been able to join another dispute resolution scheme until the compensation had been paid.
“It is okay to charge fees, but it is not okay to hide them,” says Taylor. “If you hide them, then you do not have your customer’s genuine agreement to pay them.”