Use of restricted terminology by financial advisers – ASIC strikes again!


Posted By on 17/08/18 at 9:43 PM

The Australian Securities and Investments Commission (ASIC) is continuing in its relentless drive to raise standards in the Australian financial advice industry, with its recent action to require a number of financial advisory outfits to retract claims of “independence”.

Restricted terminology

Under the Corporations Act 2001 (Cth) (the Corporations Act) and other laws, entities are restricted in their use of a wide range of descriptive terminology in relation to the conduct of their businesses.  For example:

  • under s12 of the Legal Profession Uniform Law, a person may not call themselves by one of a number of restricted terms, such as “lawyer” or “barrister”, unless authorised to do so under the Legal Profession Uniform General Rules;
  • under s113 of the Health Practitioner Regulation National Law, someone may not call themselves a “medical practitioner”, “dentist” or other restricted term, unless registered as such in the relevant profession;
  • under s66 of the Banking Act 1959 (Cth), it is an offence if an entity describes itself by one of a number of terms relating to the provision of credit, such as “banker”, “credit union” or “authorised deposit-taking institution”, unless authorised to do so under that Act or by the Australian Prudential Regulation Authority;
  • under s923B of the Corporations Act, it is an offence for a person providing a financial service to describe themselves by a number of vocational terms, including “stockbroker” or “insurance broker”, unless authorised to do so by the conditions of the Australian financial services licence (AFSL) under which they operate; and
  • under s923C of the Corporations Act, a person cannot (with some exceptions) call themselves a “financial adviser” or “financial planner” unless they are authorised to give personal advice to retail clients on relevant financial products.

restricted terminology

Implying independence

ASIC’s recent focus has been on s923A of the Corporations Act, which provides that an entity commits an offence if it uses the words “independent”, “impartial” or “unbiassed” (or expressions of “like import”, whether in English or not, or as part of or in combination with other terms) when providing a financial service (on its own account or representing another), unless certain conditions are met:

  • the person (or their employer or associates) doesn’t receive:
    • commissions (apart from commissions returned in full to clients in a timely fashion);
    • remuneration based on the volume of business placed with product issuers (although fees received from clients based on size of investment are allowed); or
    • other benefits from product issuers which could reasonably be expected to influence them (so dinners out and sponsorship of attendance at conferences can be problems);
  • the person operates free from any restrictions (other than under the Act or their AFSL) on the financial products in respect of which they provide financial services (which would cover approved product lists); and
  • the person operates without any conflicts of interest arising from their associations with product issuers that could reasonably be expected to influence them.

The conditions are quite difficult for most financial advisers to meet, as they will often fall foul of at least one of the conditions, particularly receipt of commissions, the use of approved product lists, and the catch-all ‘no conflict of interest’ provision.

 

Other expressions

ASIC has also determined that phrases such as “independently owned”, “non-aligned” and “non-institutionally owned” are also out under s923A (unless the conditions are met), even though they describe ownership arrangements, as they could still confuse consumers

However, ASIC does accept that advisers who don’t meet all the conditions can still use some descriptive terms, depending on the circumstances and provided that they don’t suggest any sort of relationship with a product issuer – such as “locally owned”, “privately owned” or “boutique licensee”.

The regulation of financial advice is a real mine-field for the uninitiated, and it’s best to run any proposed advertising or promotional materials, even if they’re just a handy catch-phrase, past an expect to check.

For more information about the use of terminology in financial service businesses, or to discuss financial services queries in general, please don’t hesitate to contact me.

Special Counsel

Venn King is a Special Counsel in KHQ’s Corporate & Commercial team.

Venn utilises his broad corporate and finance experience in the context of M&A deals and complex investment structuring... Read More