House of Representatives

Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, the Hon Kelly O'Dwyer MP)

Chapter 2 Education and training standards

Outline of chapter

2.1 Schedule 1 to the Bill amends the Corporations Act to require all relevant providers to comply with the education standards.

Summary of new law

2.2 An individual is prohibited from being authorised to provide personal advice to retail clients on relevant financial products if they do not satisfy three conditions, namely:

·
complete a bachelor or higher or equivalent qualification (or satisfy the alternative arrangements for persons with degrees from overseas jurisdictions);
·
pass an exam; and
·
undertake at least one year of work and training (the professional year).

2.3 An individual who meets the qualification and exam conditions, but is still in the course of undertaking their professional year, may be authorised as a provisional relevant provider. A provisional relevant provider is a relevant provider who is subject to additional requirements. The additional requirements include that they are supervised by a relevant provider, and that they do not use the terms 'financial adviser' or 'financial planner'.

2.4 Relevant providers also have an obligation to complete continuous professional development (CPD). Licensees have an ongoing obligation to ensure that their relevant providers comply with the CPD requirement.

2.5 The requirements for the degree, professional year, exam and CPD requirements are determined by the body.

2.6 Only an individual who is a relevant provider and has satisfied the three conditions (holds a degree, has passed the exam and has completed their professional year) can use the terms 'financial adviser' and 'financial planner'.

Comparison of key features of the new law and current law

New law Current law
An individual must meet three conditions before they can be authorised to provide personal advice on relevant financial products to retail clients.

The conditions are:

·
complete a bachelor or higher degree or equivalent qualification (or satisfy the alternative arrangement for persons with degrees from overseas jurisdictions);
·
pass an exam; and
·
undertake a professional year.

A licensee must ensure that its financial advisers are adequately trained and competent.

The minimum standards required to provide personal advice on relevant financial products are:

·
Australian Qualifications Framework level 5 ('Diploma' level) course units;
·
specialist knowledge about the specific products an adviser provides advice on, and the markets in which they operate; and
·
generic knowledge requirements, including training on the economic environment, the operation of financial markets and financial products.

Provisional relevant providers:

·
An individual who meets the qualification and exam conditions, but is still is in the course of undertaking their professional year can only give advice to clients in accordance with the supervision arrangements.

No equivalent.
Relevant providers have an obligation to complete CPD. No equivalent.
The requirements for the degree, professional year, exam and CPD are determined by the body. ASIC sets the minimum standards (through ASIC guidance).
The use of the terms financial planner and financial adviser are restricted. No equivalent.

Detailed explanation of new law

The concept of a relevant provider

2.7 The new standards apply to relevant providers. Relevant providers are natural persons who are authorised to provide personal advice to retail clients on relevant financial products. [Schedule 1, Part 1, item 1, section 910A]

2.8 A relevant provider may be:

·
a financial services licensee;
·
an authorised representative of a financial services licensee;
·
an employee of a financial services licensee;
·
a director of a financial services licensee; or
·
an employee or a director of a related body corporate of a financial services licensee.

[Schedule 1, Part 1, item 1, section 910A]

2.9 Relevant providers are listed on the Register.

2.10 A relevant financial product is a financial product other than a basic banking product, general insurance product, consumer credit insurance, or a combination of any of these products. [Schedule 1, Part 1, item 1, section 910A]

2.11 The definition of relevant financial product in the new law replicates the definition in the provisions relating to the Register of Relevant Providers in Schedule 8D of the Corporations Regulations 2001 (Corporations Regulations), inserted by the Corporations Amendment (Register of Relevant Providers) Regulation 2015 (Register Regulations). The scope of relevant financial products is consistent with the definition in the Future of Financial Advice (FOFA) reforms in Part 7.7A of the Corporations Act.

2.12 The concept of a relevant financial product is broadly similar to ASIC's concept of a Tier 1 product. The main difference between the two concepts is that personal sickness and accident insurance are not relevant financial products (whereas ASIC considers them to be Tier 1 products).

Example 2.1 : Persons who are not relevant providers Dylan provides personal advice to wholesale clients on relevant financial products. He is not authorised to give advice to retail clients.Effie is authorised to provide general advice to retail clients. She is not permitted to give personal advice which takes into account the client's objectives, financial situation or needs.George works in a bank. He is only permitted to give advice on basic banking products.Dylan, Effie and George are not relevant providers and they do not need to comply with the new standards.

Example 2.2 : Persons who are relevant providers Lucy is authorised to provide personal advice to retail clients on relevant financial products.Lucy is a relevant provider and must comply with the new education standards and the ethical requirements.

The new education standards

2.13 The new law provides that all relevant providers must comply with four education and training standards. The relevant provisions are inserted in new Division 8A of Part 7.6 of the Corporations Act. [Schedule 1, Part 1, item 12, section 921B]

First three education standards

2.14 The first three education standards are that the person must:

·
complete a bachelor or higher degree, or equivalent qualification, approved by the body (which may include an international course or a course that is not delivered by a university provider);
·
pass an exam approved by the body; and
·
undertake at least a year of work and training (professional year) that meets the requirements set by the body.

[Schedule 1, Part 1, item 12, subsections 921B(2) to (4)]

2.15 The degree requirement operates differently for persons who have completed a foreign qualification. A person who has completed a foreign qualification may apply to the body for approval by lodging an application in the form approved by the body. The body may then approve the foreign qualification as being in itself equivalent to the degree standard. Alternatively, if the body forms the view that the foreign qualification is not sufficient because it does not include a core subject, the body may require the person to complete one or more bridging courses. Once the person has completed the bridging course, they will be taken to have met the standard and do not need to reapply to the body. [Schedule 1, Part 1, item 12, paragraph 921B(2)(b) and section 921V]

2.16 A person with a foreign qualification may apply to the Administrative Appeals Tribunal for merits review and the body must give the person written notice of this right. The review rights and notification rights are the same as those that apply to decisions made by ASIC in Part 9.4A of the existing law. [Schedule 1, Part 1, item 12, subsections 921V(7) and (8)]

Example 2.3 : Persons with Foreign Qualifications Lucy completes a financial planning degree at a university in the United Kingdom and she studies a range of comparative law courses. In particular, Comparative Taxation and Superannuation Law analyses the taxation and superannuation systems in a range of Commonwealth countries, including Australia.Harry completes a financial planning degree at a university in France. He does not select any comparative tax law courses.Both Lucy and Harry have passed the exam and completed a professional year.Lucy and Harry want to be authorised as relevant financial providers and apply to the body.The body considers that Lucy's degree covers all required core subjects and approves the degree as being equivalent to the standard. Lucy has met all of the requirements to become authorised as a relevant provider and does not need to undertake any further study.On the other hand, Harry did not study any superannuation or tax law course in his degree and the body does not consider his degree to be equivalent to the standard. The body advises Harry that he needs to complete a bridging course in Australian Superannuation and Tax Law.Harry completes the bridging course in Australian Superannuation and Tax Law. He has now met the three preconditions for authorisation as a relevant provider.

Ongoing obligation

2.17 The fourth education standard is an obligation to meet the requirements for CPD set by the body [Schedule 1, Part 1, item 12, subsection 921B(5)]. Relevant providers must ensure that they meet the CPD requirement [Schedule 1, Part 1, item 12, subsection 921D(1)].

2.18 Licensees are also required to ensure that their relevant providers meet the new CPD requirement. The new law achieves this by amending licensees' obligation to ensure that their financial advisers are 'adequately trained and competent' so that it includes an obligation to ensure that their relevant providers comply with the CPD requirements. [Schedule 1, Part 1, item 2, paragraph 912A(1)(f)]

2.19 The CPD requirements will be determined by the body, but they will require the relevant provider to complete a certain number of hours of CPD in a year. A licensee's CPD year can start at any time during the calendar year. [Schedule 1, Part 1, items 1 and 12, section 910A, definition of 'CPD year', and subsection 921D(1)]

2.20 The CPD standard does not apply to provisional relevant providers. However, provisional relevant providers are required to complete training during their professional year and the body, in setting the requirements for the professional year, may determine that this training should include undertaking CPD courses (see Chapter 5). [Schedule 1, Part 1, item 12, paragraph 921D(2)(a)]

2.21 It may be the case that a provisional relevant provider completes their year of work and training part way through a CPD year, thereby meeting the requirements for becoming a relevant provider. The body may develop special CPD requirements for these circumstances.

2.22 A licensee must lodge a notice with ASIC if a relevant provider fails to comply with the CPD requirements. The notice must be provided within 30 business days after the end of each licensee's CPD year. [Schedule 1, Part 1, item 16, sections 922HB and 922L]

2.23 ASIC's existing power allows it to ban a person if the person has not complied with the law by failing to complete their mandated CPD requirements. The limitations on ASIC's banning powers explained in paragraph 2.30 apply in this context as well, including that ASIC must form the view that it is in the public interest to exercise the banning power and weigh the public interest against the detriment to the individual.

Example 2.4 : CPD Years The body determines that all relevant providers must complete 10 hours of CPD a year. The body also determines that if a relevant provider starts work as a relevant provider part way through the year, their CPD requirements are pro-rated. For example, if a person starts halfway through the CPD year, they only need to complete 5 hours of CPD a year.Licensee A's CPD year starts on 1 January and Licensee B's CPD year starts on 1 July.Alex and Bob are relevant providers who work for Licensee A and Licensee B respectively. They both start work on 1 January 2020.Alex and Bob complete the following number of hours of CPD:

·
1 February 2020 - 1 hour
·
1 August 2020 - 9 hours

Alex's CPD year runs from 1 January to 31 December. As he completed 10 hours of CPD in this period, he has met the CPD requirement.Bob's CPD year runs from 1 July to 30 June. As his first CPD year is only six months (1 January to 30 June), he is only required to complete 5 CPD units in this time. As Bob only completes 1 CPD unit in his first six months, he has failed to meet the CPD requirement.Licensee B must lodge a notice with ASIC advising it that Bob has failed to meet his CPD requirement.

Requirements for authorisation

2.24 A person may either be authorised as a:

·
relevant provider who is permitted to give advice unsupervised; or
·
provisional relevant provider who is subject to the supervision and other requirements discussed below at paragraph 2.31.

2.25 A licensee can only authorise a person as a relevant provider who is permitted to give advice unsupervised if the person has satisfied the first three education standards; that is, obtained a degree or higher or equivalent qualification, passed the exam and completed the professional year. A person can only be authorised to give advice as a provisional relevant provider if they have completed the first two education standards (degree and exam requirements) and they are currently completing their professional year. These requirements apply to both individuals who are appointed as a representative and those hired as an employee or a director. [Schedule 1, Part 1, items 5 and 12, note at the end of subsection 916A(1), subsections 921C(2) and (4)]

2.26 An authorisation is void if the relevant provider did not meet the preconditions at the time that they were authorised to provide personal advice on relevant financial products. [Schedule 1, Part 1, item 6, subsection 916A(3)]

2.27 Similar prohibitions apply to sub-authorisations of individuals to provide financial services on behalf of licensees. Sub-authorisations that are contrary to this prohibition are void. [Schedule 1, Part 1, items 7-9 and 12, subsection 916B(2), subsection 916B(2A), note at the end of subsection 916B(3) and subsection 921C(3)]

2.28 There are two options for persons completing their professional year. First, they may undertake work and training for the purposes of the professional year when they do not hold any authorisation to provide advice. For example, the person may perform appropriate paraplanning or research work as determined by the body. Second, if the person undertaking their professional year has obtained a degree or higher qualification and passed the exam, they may be authorised as a provisional relevant provider.

Example 2.5 : Conditions for authorisation as a relevant provider and a provisional relevant provider Donna and Zena both complete a degree that meets the standard set by the body. Donna also passes the exam but Zena only intends to attempt the exam next month. Both Donna and Zena want to commence their professional year and ask their licensee to authorise them as a provisional relevant provider.Ben completes a degree and the professional year, but does not sit the exam. Ben also asks his licensee to authorise him to provide personal advice to retail clients.The licensee may authorise Donna as a provisional relevant provider so that she is able to give advice on a supervised basis during her professional year.The licensee must not authorise Zena until she has passed the exam. Zena may commence her professional year before passing the exam, but she is not permitted to give advice (even on a supervised basis) until she has passed the exam and been authorised as a provisional relevant provider.The licensee must not authorise Ben as a relevant provider who is permitted to give advice unsupervised or as a provisional relevant provider who is permitted to give advice subject to the supervision requirement. This is because Ben has not met the exam precondition.

2.29 A licensee cannot be a provisional relevant provider and they cannot be authorised by ASIC until they have completed their professional year. This is because sole person licensees cannot set up the systems and arrangements to ensure that they are supervised by a more senior person within their own firm, and conflicts of interest may arise if they are supervised by a person who has been authorised by another licensee. [Schedule 1, Part 1, items 4 and 12, section 910A, note at the end of subsection 913B(1) and subsection 921C(1)]

2.30 ASIC has the power to ban a person if it has reason to believe that the person was authorised when they had not met the three conditions [Schedule 1, Part 1, item 10, paragraph 920A(1)(de)]. Section 920 of the Corporations Act already gives ASIC the power to ban a person who fails to comply with the financial services law and this power could be used to ban a person who authorised somebody who had not met the preconditions. The usual limitations on ASIC's power to take administrative action apply, including that ASIC must form the view that it is in the public interest to exercise the banning power and weigh the public interest against the detriment to the individual.

Example 2.6 : ASIC's banning powers Jerry advises Millie, who is a sole person licensee, that he has been awarded a degree, completed the professional year and passed the exam. Jerry provides supporting documentation to Millie and Millie inspects the documents closely to ensure that they are genuine.Based on her inspections, Millie is satisfied that Jerry meets the three preconditions. She authorises him to provide personal advice to retail clients on relevant financial products.Jerry's university subsequently advises Millie that Jerry does not hold a degree. Shortly after Jerry's degree was awarded, he was found guilty of academic misconduct and his degree qualification was removed.ASIC has the power to ban Jerry because he did not meet the three preconditions. ASIC also has the power to cancel Millie's licence because she improperly authorised Jerry. ASIC's banning powers are subject to the usual limitations, including that ASIC must form the view that it is in the public interest to exercise the banning power.ASIC decides to ban Jerry. It forms the view that allowing Jerry to remain in the industry poses a significant risk to retail clients because Jerry has a history of acting dishonestly and does not hold the required qualifications.However, ASIC forms the view that cancelling Millie's licence would not be in the public interest and would cause significant detriment to Millie. Accordingly, ASIC allows Millie to continue to work as a financial adviser.

Provisional relevant providers - additional requirements

Meaning of provisional relevant providers and supervisors

2.31 A provisional relevant provider is a special type of relevant provider who can only provide personal advice to retail clients on a supervised basis during their professional year. [Schedule 1, Part 1, items 1 and 12, sections 910A and 921F]

2.32 The supervisor must be a person who is a relevant provider but is not a provisional relevant provider or a limited-service time-sharing adviser. Further information on limited-service time-sharing advisers is provided later in this chapter. [Schedule 1, Part 1, item 12, subsection 921F(2)]

2.33 Existing providers are relevant providers and may supervise provisional relevant providers during the transition period. [Schedule 1, Part 2, item 27, section 1546A]

2.34 A provisional relevant provider may have multiple supervisors, either in succession or at the same time. A relevant provider is only responsible for a provisional relevant provider's engagement with a client if they were the supervisor for that particular engagement. [Schedule 1, Part 1, item 12, subsection 921F(6)]

Example 2.7 : Provisional relevant providers - successive supervisors Amanda has been authorised as a provisional relevant provider.Amanda is first told to assist Bob, a relevant provider who is preparing advice for Yolanda.Amanda and Bob finalise the statement of advice for Yolanda. Bob then takes annual leave and Amanda is assigned to work with Cathie, another relevant provider who is preparing advice for Zak.Bob is responsible for supervising Amanda in relation to the advice prepared for Yolanda. Cathie is responsible for supervising Amanda in relation to the advice given to Zak.

Example 2.8 : Provisional relevant providers - joint supervisors Large Licensees authorises Danna as a provisional relevant provider. Max and Jane are relevant providers at Large Licensees. Max specialises in superannuation and Jane's speciality is managed investment schemes.A client (client X) rings Max to seek superannuation advice and Max tells Danna to prepare the advice for client X.Jane is drafting a statement of advice for another client (client Y) and asks Danna to finish the advice.A third client (client Z) seeks a particularly complex piece of advice that covers both superannuation and managed investment schemes. Max and Jane agree to work together to provide the advice. Again, Max and Jane ask Danna to help.Max is Danna's supervisor in relation to the advice given to client X. Jane is responsible for supervising Danna in relation to the advice given to client Y. With respect to the advice given to client Z, both Max and Jane are the relevant supervisors.

Supervisors' responsibilities

2.35 The supervision requirements are that a supervisor:

·
must ensure that the provisional relevant provider is appropriately supervised;
·
must approve, in writing, the statement of advice provided to the client;
·
is taken to have provided the advice; and
·
must ensure that the client is provided with certain disclosures about the provisional relevant provider's role and expertise.

[Schedule 1, Part 1, item 12, subsections 921F(3) to (6)]

2.36 These requirements are designed to ensure that there is a direct relationship between a supervisor and the provisional relevant provider. While licensees' back-office vetting processes are important safeguards, they cannot substitute for a direct supervision and mentoring relationship between two individuals (the supervisor and the provisional relevant provider).

2.37 There is little detail about the first requirement (the requirement for appropriate supervision) in the Corporations Act. Instead, the Corporations Act merely sets out the general principle and the body will be responsible for 'unfolding' the general principle and providing further details or guidance about what amounts to appropriate supervision. This approach ensures that specific technical requirements are set by the body with specialist knowledge and the requirements can be more easily updated when practices change. [Schedule 1, Part 1, item 12, subsections 921F(3) and 921U(5)]

2.38 The second requirement is that the supervisor must approve, in writing, any statement of advice provided by the provisional relevant provider to the client. The supervisor does not need to approve oral advice, but oral advice is generally followed by a written statement of advice and this statement of advice must be approved. [Schedule 1, Part 1, item 12, subsection 921F(4)]

2.39 The third supervision rule states that the supervisor is taken to have provided all advice (written and oral) given by the provisional relevant provider. The supervisor will be taken to have provided the advice even if he was not aware that the advice had been given or of the content of the advice. The only exception is if a person can establish that he or she was not in fact the supervisor at the relevant point in time, for example, if the person was on leave and another person had been appointed to supervise the provisional relevant provider. [Schedule 1, Part 1, item 12, subsection 921F(5)]

2.40 The fact that the supervisor is deemed to have given the advice does not affect, or in any way diminish, the responsibility of the licensee under existing provisions in the Corporations Act, such as Division 6 (liability of licensees for representatives) or section 961L (licensees required to take reasonable steps to ensure that its representatives comply with the best interests duty).

Example 2.9 : Supervision requirements - supervisor taken to have provided advice Ahmed is an experienced adviser at Excellent Licensee. Beatrice, a provisional relevant provider who has just completed a financial planning degree and passed the exam, starts work at Excellent Licensees. Ahmed is assigned as her supervisor.Excellent Licensees does not have any systems in place to ensure that supervisors adequately monitor their provisional relevant providers. Some supervisors, including Ahmed, allow their provisional relevant providers to work unsupervised, and do not attend any meetings with them or read their statements of advice. The more diligent advisers have raised their concerns with Excellent Licensees' management but Excellent Licensees has disregarded their concerns.Beatrice prepares a statement of advice and asks Ahmed to review it. Ahmed states that he is busy and tells Beatrice to just send the advice to the client. The advice recommends that the client make certain investments which are not in the client's best interests.Ahmed did not 'provide' any of Beatrice's advice, but he is taken to have provided Beatrice's advice under the new law because he was her supervisor. As a result, Ahmed is in breach of the duty to act in the client's best interests under section 961B. He is also in breach of the supervision requirements under the new law.Excellent Licensees is also in breach of its obligation to take reasonable steps to ensure that its relevant providers comply with the best interests duty and the supervision requirements in the new law.

2.41 The final supervision requirement is that the supervisor must ensure that certain disclosures are provided to a client who is being advised by a provisional relevant provider. The information that must be provided is:

·
the name of the person(s) supervising the provisional relevant provider;
·
that the provisional relevant provider is currently undertaking their professional year, and
·
that the supervisor, or supervisors, are taken to have provided advice given by the provisional relevant provider.

[Schedule 1, Part 1, item 12, subsection 921F(6)]

2.42 Similar disclosures in other regimes, such as the disclosures in the Tax Agent Services Act 2009 (TASA), are provided with standard disclaimers in Statements of Advice. The new law does not, however, mandate this approach.

2.43 If one supervisor is replaced by another supervisor, the new supervisor will be responsible for advising the client. It is not necessary for the supervisor to personally provide the above disclosures and it is sufficient if the supervisor knows that another person has provided the disclosures.

Example 2.10 : Supervision requirements - disclosure requirements Alex is a provisional relevant provider who is assisting Carolyn (a qualified relevant provider) to provide advice to client X.Carolyn emails client X to notify the client that Alex will be assisting. The email states that Alex is a provisional relevant provider undertaking his professional year. It also states that Carolyn is supervising Alex and that she will be responsible for the statement of advice.Carolyn goes on maternity leave and Danny becomes Alex's new supervisor and takes over the work for client X. Before leaving, Carolyn provides Danny with all of the documents for client X's files, including her email about Alex.Danny sees Carolyn's email about Alex and does not provide any further disclosures to client X.Danny does not need to advise client X that Alex, who is a provisional relevant provider undertaking his professional year, is assisting because he can rely on Carolyn's email. However, Danny must ensure that client X is informed that he is replacing Carolyn as the new supervisor and that he will now be responsible for the statement of advice.

Provisional relevant providers' responsibilities

2.44 A provisional relevant provider must not obstruct or hinder a supervisor from providing appropriate supervision. [Schedule 1, Part 1, item 12, subsection 921F(7)]

Example 2.11 : Supervision requirements - Appropriate supervision Amy is a provisional relevant provider who is supervised by Bob.Bob diligently supervises Amy, in accordance with the requirements set by the body. He attends all meetings with her, checks her drafts and signs off on all advice that Amy prepares.Amy becomes frustrated with Bob's close supervision and feels that she should be allowed to give advice without any supervision. When a new client contacts Amy, Amy pretends that she has completed her professional year. She does not tell Bob about the telephone call and secretly prepares the advice without telling anyone else at the organisation. She then provides the advice to the client without first giving it to Bob to review.Amy has breached her obligation as she has obstructed or hindered her supervisor from ensuring she is appropriately supervised.

Penalties for non-compliance

2.45 ASIC may ban a supervisor or a provisional relevant provider who fails to comply with the supervision requirements [Schedule 1, Part 1, item 10, paragraph 920A(1)(db))]. ASIC may also ban a natural person licensee if one of its provisional relevant providers or supervisors fails to comply with the supervision requirements [Schedule 1, Part 1, item 10, paragraphs 920A(1)(dc) and (dd))]. The usual limitations on ASIC's power to take administrative action apply, including that ASIC must form the view that it is in the public interest to exercise the banning power and weigh the public interest against the detriment to the individual. Role of the body

2.46 The body may provide further detail on how the supervision requirements should work in practice or set additional requirements. [Schedule 1, Part 1, item 12, note under subsection 921F(6) and subsection 921U(5)]

2.47 The body must also develop a common term for provisional relevant providers. The term should be meaningful to consumers and industry. It may include the protected words ('financial adviser' or 'financial planner'), provided the protected words are appropriately qualified. Examples of possible terms are 'provisional financial adviser', 'conditional financial adviser' and 'restricted financial adviser'. [Schedule 1, Part 1, items 12 and 17, subparagraph 921U(2)(a)(v) and subsection 923C(9)]

Exemption for timeshare schemes

2.48 The new law exempts relevant providers who only provide advice on timeshare schemes (and any financial products that are not classified as relevant financial products) from the education standards. These persons only need to meet the education standards that apply to financial products that are not relevant financial products. [Schedule 1, Part 1, item 12, subsection 921C(5) and paragraph 921D(2)(b)]

2.49 The exemption reflects the fact that timeshare arrangements are inherently different to other relevant financial products. Timeshare interests are not sold as financial investments that generate a return, but as lifestyle products or prepayments for holidays.

2.50 The exemption does not apply to the ethical requirements in new Subdivision B of Division 8A which apply to all relevant providers. This means that persons who are authorised to provide personal advice on timeshare schemes to retail clients must comply with the Code developed by the body and subscribe to a scheme. [Schedule 1, Part 1, item 12, section 921E]

2.51 A timeshare provider that does not meet all of the standards is a limited-service time-sharing adviser. Limited-service time-sharing advisers are prohibited from using the terms 'financial adviser' and 'financial planner' or supervising provisional relevant providers. [Schedule 1, Part 1, items 1, 12 and 17, section 910A, paragraph 921F(2)(d) and subparagraphs 923C(1)(c)(iii) and(2)(d)(iii)]

Example 2.12 : Exemption for limited-service time-sharing advisers Assume that Wayne, Xanthe, Yaakov and Zan all provide personal advice to retail clients.Wayne and Xanthe only provide advice on timeshare schemes.Yaakov provides advice on timeshare schemes and general insurance products. (General insurance products are not relevant financial products.)Zan provides advice on timeshare schemes and relevant financial products.Wayne, Xanthe and Yaakov are not required to meet the new education standards as they do not provide advice on any relevant financial products apart from timeshare schemes. Nevertheless, Xanthe decides to meet the new education requirements - she obtains a degree, passes the exam and completes the professional year.Zan is required to meet the new education requirement and has done so.Wayne and Yaakov are limited-service time-sharing advisers. They cannot use a protected title or supervise a provisional relevant provider.Xanthe and Zan are not limited-service time-sharing advisers. They may use a protected title or supervise a provisional relevant provider.Wayne, Xanthe, Yaakov and Zan must all comply with the Code and subscribe to a scheme. The ethical requirements apply to all relevant providers, including limited-service time-sharing advisers.

ASIC's exemption and modification powers

2.52 Section 926A of the existing law gives ASIC the power to exempt:

·
a person or class of persons; or
·
a financial product or class of financial products

from any provision in Part 7.6 of the Corporations Act except those in Divisions 4 and 8. This power applies to the new standards which are inserted into Divisions 8A, 8B, 8C, 9 and 10.

2.53 ASIC's exemption and modification power also extends to the transitional arrangements for existing providers in Part 10.23A. [Schedule 1, Part 1, item 18, paragraph 926A(6)(b)]

2.54 Exemptions and declarations which apply to a class of persons or financial products are legislative instruments and accordingly, they are disallowable and sunset. Exemptions and declarations which do not relate to a class are notifiable instruments, that is, they must be published but they are not disallowable and do not sunset.

2.55 ASIC has used its exemption and modification power to provide administrative relief in circumstances where the strict operation of the Corporations Act produces unintended or unreasonable outcomes. As the financial services sector is undergoing innovation and change, it is appropriate that ASIC's exemption and modifications power applies to the new standards.

2.56 ASIC's power is subject to a number of safeguards, including administrative review by the Administrative Appeals Tribunal, judicial review and consideration in appropriate circumstances by the Commonwealth Ombudsman.

Restriction on use of terms 'financial adviser' and 'financial planner'

2.57 The new law restricts the use of the titles 'financial adviser' and 'financial planner', terms of like import and combinations of words which include these terms, to individuals who are relevant providers. [Schedule 1, Part 1, item 17, subsections 923C(1), (2) and (8)]

2.58 Individuals who are relevant providers may choose to use either the title 'financial adviser' or 'financial planner', or both.

2.59 Limited-service time-sharing advisers, who have not met the degree, professional year and exam requirements, are not permitted to use a protected term. [Schedule 1, Part 1, item 17, subparagraphs 923C(1)(c)(iii) and (2)(d)(iii)]

2.60 Provisional relevant providers, who have not completed their professional year, are not permitted to use the protected terms. They may use the term developed by the standards body, even if it includes the words 'financial adviser' or 'financial planner'. [Schedule 1, Part 1, item 17, subparagraphs 923C(1)(c)(ii) and (2)(d)(ii), and subsection 923C(9)]

2.61 Protecting the titles 'financial adviser' and 'financial planner', and like terms, will allow retail clients to quickly distinguish the individuals who satisfy the new standards and are authorised to provide personal advice on relevant financial products to retail clients.

2.62 The new law exempts persons who provide advice to wholesale clients or provide in-house advice to their employer. These persons will be permitted to use a restricted term in the ordinary course of activities associated with providing such advice. Showing that advice was provided to wholesale or in-house clients is accordingly a defence against an allegation of a breach of the prohibition on using the protected terms. Under the Criminal Code a defendant wishing to rely on the exemptions bears an evidential burden in relation to proving that the exemption applies. The standard of proof is only to provide evidence that 'suggests a reasonable possibility' that the exemption applies (Criminal Code subsections 13.3(3) and (6)). [Schedule 1, Part 1, item 17, subsections 923C(3) to (6)]

2.63 Persons who provide advice to wholesale clients or in-house clients are not permitted to use a protected title in the course of giving advice to retail clients. [Schedule 1, Part 1, item 17, subsections 923C(3) to (6)]

2.64 The rationale for allowing persons who provide advice to wholesale and in-house clients to use the protected terms in the course of activities associated with providing the in-house or wholesale advice is that these reforms are designed to protect retail clients. Wholesale and in-house clients do not require the same level of protection as retail clients because they are considered to be better informed, more sophisticated and better able to assess the risks involved in financial transactions.

2.65 The penalty for contravention of this section is 10 penalty units for each day a restricted term is unlawfully used. [Schedule 1, Part 1, items 17 and 20, subsection 923C(7) and sections 269AAA and 269AAB of the table in Schedule 3]

Example 2.13 : Restriction on the use of the terms 'financial adviser' and 'financial planner' Raj is only authorised to give advice on basic banking products.Raj calls himself a 'financial advice expert'. He prints business cards with this title.Raj has used a term of like import to 'financial adviser' when he is not authorised to provide personal advice to retail clients on relevant financial products. He has committed an offence and is liable to pay a penalty of 10 penalty units per day that he uses the restricted title.

Example 2.14 : Use of protected terms by provisional relevant providers Assume that the body decides that provisional relevant providers are to use the term 'conditional financial adviser'.Amanda, Bob and Cathie are provisional relevant providers. Amanda, Bob and Cathie all have business cards which they provide to clients.Amanda's business card states that she is a 'conditional financial adviser'.Amanda is not in breach of the new restrictions on the use of protected terms because she has used the term developed by the standards body.Bob's business card states that he is a 'new financial adviser' and Cathie's business card states that she is a 'financial adviser in training'.Bob and Cathie are in breach of the new law because they have used the restricted words when they had not completed their professional year and they did not use the term set by the new body.

Example 2.15 : Exemption for persons providing advice to wholesale clients Charlie is authorised to provide advice to wholesale clients. He is not authorised to provide personal advice to retail clients on relevant financial products and he has not passed the exam.Charlie may use the titles 'financial adviser' and/or 'financial planner' in relation to providing advice to wholesale clients. However, Charlie must not use a protected title when talking to retail clients.

2.66 The restrictions on the use of the terms 'financial adviser' and 'financial planner' do not affect a licensee's obligation to have compensation arrangements in place under section 912B. Section 912B states that the licensee will only be required to compensate a customer if the customer suffers loss or damage because of a breach of the law. [Schedule 1, Part 1, item 17, subsection 923C(10)]

Example 2.16 : Compensation arrangements not affected by restriction of title Raj calls himself a 'financial advice expert' when he is not authorised to give advice on relevant financial products. This is a breach of the new law.Mandy sees that Raj is a 'financial advice expert' and decides to obtain financial advice about her basic banking product from him. Raj gives advice and it is sound.Mandy later becomes aware that Raj improperly used a restricted title and seeks compensation from Raj's licensee.Raj's licensee is not required to pay any compensation because Mandy did not suffer any loss or damage because of Raj's improper use of a restricted title.

Application and transitional provisions

2.67 The amendments in this Chapter will apply from 1 January 2019. [Schedule 1, Part 2, item 27, sections 1546C, 1546D and 1546E]

2.68 Different requirements apply to individuals who were financial advisers listed on the Register between 1 January 2016 and 1 January 2019. These are set out in Chapter 6.


View full documentView full documentBack to top