In brief - Restrictions on use of terms by people who are not entitled to provide financial advice
The federal government is continuing its ongoing reform of financial services law. Most recently, it released an Exposure Draft of further amendments that will restrict persons from using the terms "financial planner" or "financial adviser" unless, in effect, they are entitled to provide financial advice. The law does not yet have assent.
Reforms to allow consumers to identify genuine providers of financial product advice
Presently, there is no restriction on the use of the term "financial planner" or "financial adviser". It is currently common practice for personal, commercial and industry-based wealth or equity advisers to adopt a financial-services based title such as "planner" or "adviser". As at the date of this update, the Corporations Act 2001 (Cth) and its associated regulations do not prevent someone adopting that title, even if they are not authorised to provide financial advice.
Based on the Federal government's review of the status of the law, there seems to be concern that unqualified or banned persons may be holding themselves out to the public as advisers or planners. This trend has led to an apparent concern for consumers who may likely be confused and waylaid by such terminology. The aim of the proposed amendments is to ensure that consumers are readily able to identify which service provider is in fact a genuine provider of financial product advice.
Current restrictions on claiming to hold an Australian Financial Services Licence
Currently, section 911C of the Corporations Act prevents persons from representing that they hold (or are exempt from holding) an Australian Financial Services Licence (AFSL) if that is not the case. The section also currently prevents them from representing that they are authorised by another AFSL holder if they are not in fact authorised. However, as noted below, this is seen as insufficient protection for consumers.
Proposed restrictions may extend to both private and public communications
The law as it stands today does not expressly preclude a person from holding out that they are a financial planner or a financial adviser. This seems to have been viewed by the Federal government as a shortfall in the Corporations Act. In response, an Exposure Draft of amending legislation which was released in late November proposes to:
• prohibit anyone from using the term "financial planner" or "financial adviser" if they are not in fact entitled to provide advice under the AFSL scheme currently in place within the Corporations Act
• prevent use of those terms by such persons in advertisements, marketing material, letterheads, communications, or in any other way (the proposed amendments are at this stage unclear and may even extend to any type of communication whether private or public)
• prevent even incidental representation (such as by including it in the name of a firm or on business cards)
• provide clarity to consumers on who is (and is not) a legally authorised financial planner or financial adviser
The proposed amendment will make it an offence for an unqualified person to hold out that they are in fact a financial planner or adviser. The penalty has been proposed as 10 penalty units per day for as long as the offence is committed.
Financial services companies will need to be wary of potential breaches
Financial services companies which currently employ titles such as the fictitious XYZ Financial Planners or Smith & Stephenson: Financial Advisers and Accountants may find themselves liable for criminal sanctions of 10 penalty units per day from the first date the offence commenced.
Although the amendment will not be retroactive (that is, the penalty period can only run from the date the amendments become law), firms such as XYZ and Smith & Stephenson will be subject to the rigours of legislated marketing if the Exposure Draft is passed by parliament.
However, it should be emphasised that it is not simply marketing, publications and business names that will be monitored and penalised. Based on the current face of the Exposure Draft, it will extend to correspondence, pamphlets, webpages, spoken words and any form of communication of the words "financial planner" or "financial adviser" if that person or firm is not in fact entitled to give financial product advice.
Although most financial services providers are careful to monitor their representations to the public, and in private, some circumstances may be envisaged whereby a firm of accountants, such as the example of Smith & Stephenson above, takes on an authorised financial product adviser as a partner and adopts the title of "financial advisers". If the certified planner then leaves, but the firm keeps its name, it may technically be in breach of the proposed restrictions.
Financial service providers will need to monitor their representations
If the Exposure Draft is passed without objection, it will amend the current Corporations Act to prevent the use of the terms "financial planner" and "financial adviser" where a person is not actually licensed to be a planner or adviser.
For most financial service providers, who are licensed in accordance with the AFSL regime, this will not be a concern. However, it seems that in future it will be important to ensure financial services practices and professionals:
• do not represent that they are a "financial planner" or "financial adviser" if they are not in fact licensed to be such a planner or adviser
• monitor their licence status carefully and ensure it remains up to date
• consider their communications before making representations or mentioning that they are a "financial planner" or "financial adviser"
The proposed Bill is likely to be tabled and is intended to be introduced with or around the same time as a 1 July 2013 suite of legislative reforms of the financial services industry.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2021.