The Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013 will, if passed, amend the Corporations Act to define the terms ‘financial planner’ and ‘financial adviser’ and to restrict the use of these terms and terms of like import.

The change will take effect from the later of 1 July 2013 or the day after the Act receives the Royal Assent.

Use of the terms ‘financial adviser’, ‘financial planner’ and terms of like import is restricted to those persons able to provide personal advice on designated financial products.

This means that relevant Licence holders authorised to provide personal advice, for example stockbrokers, will be able to use the restricted terms.

Persons who do not hold Licences will not be able to use the restricted terms. For example, property spruikers who use the restricted terms will commit an offence attracting a penalty of 10 penalty units per day if an individual, and 50 penalty units per day if a corporation. (A penalty unit equals $170).

The requirement to hold a Licence does not apply where the person is subject to an exemption (outlined in subsection 911A(2) of the Corporations Act).

‘Financial product advice’ is defined in subsection 766B(1) of the Corporations Act as a recommendation or statement of opinion intended to influence a decision in relation to a financial product or class of products. ‘Personal advice’ is defined in subsection 766B(3) of the Corporations Act as financial product advice directed to a person in circumstances where the adviser has considered the person’s objectives, financial situation and needs.

Persons authorised only to provide general advice will not be able to call themselves ‘financial advisers’ or ‘financial planners’. Similarly, persons not authorised to provide any form of financial product advice will not be able to call themselves ‘financial planners’ or ‘financial advisers’.

ASIC has published Regulatory Guide 246 Conflicted remuneration (RG 246) on complying with the provisions on conflicted remuneration and other banned remuneration in Divisions 4 and 5 of Part 7.7A of the Corporations Act 2001 which apply from 1 July 2013.

The Corporations Act prohibits:
(a) AFS licensees and their representatives (including authorised representatives) from accepting conflicted remuneration (s963E, 963G and 963H);
(b) product issuers and sellers from giving conflicted remuneration to AFS licensees and their representatives (s963K); and
(c) employers from giving their AFS licensee or representative employees conflicted remuneration for work they carry out as an employee (s963J).

The other forms of remuneration that are generally prohibited are:
(a) a platform operator accepting a volume-based shelf-space fee from a funds manager; and
(b) an AFS licensee, or its representative, who provides financial product advice to a retail client charging asset-based fees on borrowed amounts used to acquire financial products by, or on behalf of, the client.

Conflicted remuneration is any benefit given to an AFS licensee, or its representative, who provides financial product advice to retail clients that, because of the nature of the benefit or the circumstances in which it is given, could reasonably be expected to influence:
(a) the choice of financial product recommended to clients by the AFS licensee or representative; or
(b) the financial product advice given to clients by the AFS licensee or representative: s963A.

RG246 covers:

• volume-based benefits
• performance benefits for employees
• volume-based shelf space fees
• asset based fees on borrowed amounts
• transitional provisions
• the anti avoidance provision

ASIC has recognised that not all performance benefits provided to employees could reasonably be expected to influence the advice they provide.

ASIC has released Regulatory Guide 245 Fee disclosure statements (RG 245) which outlines the fee disclosure statement (FDS) requirements that will apply from 1 July 2013 to AFS licensees and their representatives who receive ongoing fees from retail clients to whom they have given personal advice.

Under the FOFA reforms, advice providers receiving fees for giving personal advice under an ongoing arrangement with a retail client must provide the client with an annual FDS setting out information about:

• the fees paid by the client;
• the services provided to the client; and
• the services that the client was entitled to receive.

The regulatory guide explains:

• the FDS obligations and when they apply;
• who must give an FDS;
• the circumstances giving rise to the obligation to give an FDS; and
• the information that must be disclosed in the FDS.

It also sets out limited no-action transition positions adopted by ASIC in relation to streamlining the FDS obligations. These no-action positions only apply in relation to existing clients.

Background

ASIC has released final guidance for two aspects of the Future of Financial Advice (FOFA) reforms – the best interests duty and scaled advice.

ASIC’s final guidance on the best interests duty is in an update to Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (RG 175) and covers:

• acting in the best interests of the client
• satisfying the ‘safe harbour’ for the best interests duty
• providing appropriate personal advice, and
• prioritising the interests of the client.

The scaled advice guidance is in Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244).

ASIC has provided examples about giving scaled advice while complying with the best interests duty.

It includes worked examples of scaled advice by banks, general insurers, superannuation funds, financial planners, and stockbrokers.

ASIC will release final guidance on conflicted remuneration and employee remuneration in February 2013.

Treasury has released a draft of Corporations and Consumer Legislation Amendment (Consumer Financial Protection) Bill 2012 for consultation.

The Bill will restrict the use of the terms ‘financial adviser’ and ‘financial planner’.

An exposure draft regulation has also been released for consultation.

The regulations will replace the licence exemption for accountants with a new form of limited licence from 1 July 2013 which will enable accountants to discuss a range of financial products with their clients. The range of products includes SMSFs, superannuation, securities, simple managed investment schemes, general insurance, life risk insurance and basic deposit products. Apart from SMSFs, holders of this licence will only be able to talk about these products at a class of product level, meaning they cannot recommend specific products to their clients. Holders of this licence will also be able to lodge an annual compliance certificate rather than an auditor’s report if they do not handle client money.

The consumer protection provisions of the Corporations Act, such as the best interests duty, will be extended to financial advice provided by accountants.

The draft regulations also streamline licence experience requirements for accountants who hold a practicing certificate issued by one of the professional accounting bodies (the Institute of Chartered Accountants in Australia, CPA Australia Ltd and the Institute of Public Accountants).

The FOFA opt-in measure requires a financial adviser or planner who charges on-going fees to send a renewal (‘opt-in’) notice every two years to clients.

Financial advisers bound by an ASIC approved code of conduct will be exempt from the ‘opt-in’ provisions.

ASIC has released Consultation Paper 191 Future of Financial Advice: Approval of codes of conduct for exemption from opt-in requirement (CP 191) on its approach to code approval and relief powers under the Future of Financial Advice (FOFA) reforms.

ASIC will consider applications for approval of a FOFA code once final policy is published in RG 183. ASIC notes that unless a licensee opts in to the FOFA regime before 1 July 2013, the earliest date an adviser would need to comply with the opt-in requirement, or join an approved code, is 1 July 2015.

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