The Fee Disclosure That Arrived Late
Marcus works in the client services team of a suburban financial planning practice. A client, Mrs Okafor, signed an advice fee consent form on 3 June agreeing to an ongoing fee of $2,200 per year, deducted monthly. The practice's system shows the first deduction occurred on 1 July. Marcus is reviewing the file in September and finds that the fee disclosure statement required before the fee can be charged for the second year was never sent. The practice's compliance manual says the disclosure must be provided before the fee is charged, and that if it is not, the fee cannot be charged until it is. The practice principal tells Marcus to "just backdate the disclosure to June and send it now - the client won't mind, she agreed to the fee anyway." Mrs Okafor has phoned twice asking why her statements look different from what she expected.
1. Assess the principal's instruction. What is wrong with it, and what are the consequences for the client and the practice?
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The instruction is wrong on two levels.
Legal/regulatory level: Backdating a disclosure document to make it appear it was sent in June, when it was not, creates a false record. That is a record-keeping and potentially misleading-conduct problem, regardless of whether the client "minds". The obligation is to provide the disclosure before charging the fee; if it was not provided, the fee should not have been charged, and the fix is to provide it now and address the fees already taken, not to rewrite history.
Client-relationship level: Mrs Okafor has already noticed discrepancies and phoned twice. Her concerns are unresolved. Backdating would compound the problem if she later obtains the record, and it undermines trust in the practice.
Consequences: For the client, fees may have been charged without the required disclosure, and she may be entitled to a refund or adjustment. For the practice, there is a breach of the disclosure obligation, a false record, and an unresolved client complaint - all of which are reportable or at least reviewable internally. Marcus should decline to backdate, escalate through the compliance channel, and propose the correct remedy: send the disclosure now with the accurate date, review fees charged since the missed disclosure, and contact Mrs Okafor to explain.
2. What should Marcus actually do, step by step, and how should he communicate with Mrs Okafor?
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A defensible sequence:
- Do not backdate anything. Leave the file as it is and record in writing that he was asked to backdate and declined.
- Escalate to the compliance officer or the principal's supervisor, in writing, setting out the missed disclosure, the fees charged, and the instruction he received.
- Prepare the correct disclosure dated today, showing the actual position, and have it reviewed before sending.
- Review the fees charged since the disclosure was due and determine what adjustment or refund is owed. Do not simply keep charging.
- Contact Mrs Okafor promptly, acknowledge the delay, explain what the disclosure means, confirm what fees have been charged and what will change, and invite her to raise any concerns. Keep a file note of the call.
When communicating with Mrs Okafor, Marcus should be accurate and not blame the principal personally. Something like: "We identified that a required annual disclosure was not sent to you before fees continued. I'm sending it now with today's date. I've also reviewed the fees charged in that period and can confirm [adjustment]. I'm sorry for the confusion and I'm happy to go through the figures with you." The key judgement is that honesty about the error, plus a concrete remedy, is better for the client and the practice than a tidy-looking but false record.