Disclosing fees and commission to planning clients
What a South African financial planner must disclose in writing about fees, commission and cancellation charges under the FPI Code, and when.
By Achekam · · 5 min read · For Financial services businesses in South Africa
Clients rarely object to paying a financial planner. What they object to is discovering a charge they did not expect: an ongoing advice fee deducted from their investment every month, commission they never knew about, or a penalty when they tried to move to another adviser. By the time that discovery happens, the relationship is usually over.
The Financial Planning Institute of Southern Africa (FPI) Code of Ethics and Practice Standards sets out what a member must put in writing about money, and some limits on how a planner may earn it. This article goes through those rules in the order a client would ask about them, then shows how a practice can get the disclosure signed and bill exactly what was agreed.
What the fee covers and how it is worked out
FPI rule 7.35 requires members to explain in writing three things about their fees:
- what the fee covers, so the client knows which services are included and which would cost more;
- how the fee is computed, whether as a fixed amount, an hourly rate, or a percentage of assets under advice;
- the billing arrangements, meaning when the client is invoiced, how often, and whether the fee is paid directly or deducted from a product.
A planner who charges a percentage of assets should show, in words or with the client's own numbers, what that means in rand at the client's current portfolio value. A percentage alone can hide how large the charge really is.
Commission as a percentage and in rand
The same rule requires written disclosure of any commission received, both as a percentage and in monetary terms. Both forms are required for a reason. "Commission of a percentage of premiums" sounds modest; the same commission shown as a rand amount over the life of a policy may not.
Where commission depends on future premiums or investment values, show how it was calculated and on what assumption, and update the disclosure if the product changes.
Penalties and exit charges
Rule 7.35 also requires written disclosure of any penalties or cancellation or termination fees that may arise, and when. That covers charges levied by the planner and, in practice, the charges a client would face from a product provider if they cancel or move early. A client signing up for a product with a penalty period should see that period in writing before they commit.
Consent first, and a review point for ongoing charges
FPI rule 5.2 says a member does not charge a client for a service or product without the client's consent, and does not implement a service or product charged on an ongoing basis without first agreeing a review point for it.
The review point is the part many practices skip. An ongoing advice fee that runs for years without anyone asking whether the client still needs the service is exactly what the rule is written to prevent. Agree when the ongoing charge will be reviewed, write it into the disclosure, and diarise it. The same thinking sits behind putting clear terms into the engagement document itself, covered in engagement terms a financial planner puts in writing.
Two limits on how a planner earns
The Code does not only require disclosure; it also restricts certain kinds of earning.
- No contingency fees for tax returns. FPI rule 7.42 says members who are tax practitioners do not charge a contingency fee for completing tax returns, and follow the principles of the Contingency Fees Act of 1997 where contingency fees are charged in other circumstances. A fee that depends on the size of a refund is off the table for returns.
- No advice that only generates income. FPI rule 7.40 says members do not advise a client to take any action that would merely generate remuneration for the member without any benefit to the client.
Both rest on the Code's foundation: clients' interests come first, and personal interest or advantage, in any form, does not come before them. The full wording of every rule mentioned here is in the FPI Code of Ethics and Professional Responsibility, published by the FPI.
From signed disclosure to matching invoice
A disclosure is only useful if the practice can show that the client accepted it and that what was later billed matched it. Achekam supports both ends of that.
Signature. The fee and commission disclosure can be sent for electronic signature, with signature and initials fields placed on it, an expiry and reminders. It can be built from a saved template with merge fields, so the client's name and the agreed fee drop into wording the practice has already approved. When the client signs, the signed PDF and a completion certificate are filed back into Documents. Keep it in the client's folder in the Document Centre, where a revised disclosure keeps the earlier versions instead of overwriting them.
Invoicing. When the fee falls due, the practice raises a customer invoice as a draft, checks the amount and description against the signed disclosure, and issues it. Issuing takes the next number in the sequence and posts the invoice to the ledger, so the fee is in the practice's books the moment it is billed, with no retyping. Default payment terms are 30 days, so make sure the disclosure tells the client when payment is expected. If a client settles several invoices in one transfer, one client payment covering several invoices shows how to allocate it.
A simple habit ties the two together: put the reference of the signed disclosure in the invoice description. Anyone checking the file later can then trace each charge to the consent behind it.
Check your current disclosures
Take one client on an ongoing fee and one who bought a commission-paying product this year. For each, check that the file holds a signed disclosure stating what the fee covers, how it is worked out, how it is billed, any commission as a percentage and in rand, any penalties and when they apply, and a review date for ongoing charges. Then compare the last invoice against it. Where any item is missing, fix the template before the next client signs.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
