Commonwealth Government Proposal Paper | "Corporate and Financial Services Regulation Review"
1. Definition of financial advice
Financial advice can be "general" or "personal' advice. Anyone providing financial advice is subject to the licensing, training and disclosure requirements in Chapter 7 of the Corporations Act 2001 (Cth) (Act).
Personal advice is given when a financial service provider uses personal information and product information to make a recommendation to a client. If personal advice is given, the licensee is required to provide a Statement of Advice to the client. The current definition of personal advice encompasses various situations when recommendation is made to a client eg: a person recommends anyone of several products that may be provided by that person. This is merely a sales function and not providing financial advice.
The proposal will allow providers of financial products to be able to recommend financial products (sales recommendation) based on clients' objectives, financial satiation and needs without the recommendation being classified as financial advice . The proposal will include conditions to be satisfied before a financial services provider will be able to us the sales recommendation situation.
2. Statement of Advice
The proposal is to remove the need to provide a Statement of Advice in situations where personal financial advice is given to a retail client, where there is no recommendation made and no remuneration is received for the advice. This proposed change will apply where:
personal advice is provided but the advice:
does not contain any recommendations relating to a specific financial product or products of a specific product issuer; or
the advice is only that the client continue to hold an existing financial product;
the adviser does not receive any remuneration in respect of the recommendation ; and
the provider keeps a Record of Advice and the client is able to obtain a copy of the Record.
3. Threshold for Statement of Advice
It is the requirement under the law that anyone providing personal advice should give a Statement of Advice setting out the advice provided. This may have some unintended consequences, especially when the advice sought is minor or the funds to be invested is small.
The proposal intends to introduce a threshold requirement for Statement of Advice so that a full Statement of Advice will be required only if advice is given in relation to an investment that is above A$10,000, except in the case of superannuation. A Record of Advice will have to kept in case of advice in respect of investment below the threshold amount.
4. Sophisticated investors
Additional information is required to be provided if a client is classified as retail client as opposed to a wholesale client. Under the definition of a retail client as it appears in the law currently, some of the clients who would wish to treated as wholesale clients will still be considered as retail clients, thus inserting an unnecessary disclosure obligation.
The proposal will insert the "sophisticated investor" provisions appearing in Chapter 6D of the Act, which deals with fund raising.
Under the proposal , a determination of wholesale status will be made if the licensee is satisfied that the person to whom the offer is made has previous experience enabling the person to make a knowledgeable decision.
5. Registered schemes investing in unregistered schemes
The proposal is to remove the prohibition in section 601 FC(4) of the Act, that disallows a registered scheme from investing in unregistered schemes.