Financial advice is regulated under the Corporations Act 2001 (Cth) as financial product advice. The provision of financial product advice is a financial service and a financial planner or adviser must hold an Australian Financial Services Licence (AFS Licence) or operate under an exemption to this licensing requirement.
Financial advisors and AFS Licence holders are subject to general licensing obligations including relating to conduct and disclosure as well as additional obligations for financial advisers who provide financial product advice to retail clients.
In this post, we introduce the types of advice given, the topics typically covered by advice and the regulatory framework.
Types of financial product advice
Under the Corporations Act there are two types of financial product advice. These are:
- personal advice which is defined as financial product advice that is given or directed to a person in circumstances where the provider of the advice has considered one or more of the person’s financial objectives, situation and needs, or a reasonable person might expect the provider to have considered one or more of these matters. Personal advice can also be further classified as either scaled advice meaning personal advice is limited in scope, relating to a specific issue or specific range of issues raised by a client or comprehensive advice providing holistic or full advice covering a client’s financial needs.
- general advice which is financial product advice that is not personal advice. General advice covers guidance, advertising, promotional and sales material highlighting the potential financial benefits of a product.
Financial product advice generally involves a qualitative judgement, evaluation, assessment, or comparison of the features of a financial product.
Main topics covered by financial advice
The main areas covered by financial advice include the following:
- Superannuation and retirement advice: referring to advice that seeks to help individuals plan for their retirement.
- Loan and investment advice: advice related to the determination of the most suitable loan product and financial asset allocation for a consumer.
- Self-managed superannuation fund advice: typically concerning advice provided to support the investment and administration’s decision is made by the trustee.
- Tax advice: relating to financial product advice liabilities, obligations and entitlements that could arise under a taxation law.
Legal and regulatory framework
There are a number of sources of regulatory obligations for AFS licensees and their representatives. These include:
- General common law duty of care: the adviser may be subject to an implied duty of care and can be liable in negligence.
- Contractual: where advice is provided pursuant to a contract there will be contractual duties and an advisor may be liable for a breach of contract where it fails to abide by the terms of the contract.
- Fiduciary duties: fiduciary duties will apply where the relationship between the parties is fiduciary in nature. Fiduciary duties include the no conflicts and no profit rules.
- AFS licensing requirements: the AFS Licence will include a number of obligations on the licensee.
- Corporations Act 2001 (Cth): there are various obligations in the Corporations Act 2001 (Cth) including s 912A that need to be considered. There are also obligations in relation to a licensee’s dispute resolution system and mandatory disclosures.
- Australian Security and Investments Commission Act 2001 (Cth): including prohibitions against unfair contract terms, unconscionable conduct, misleading or deceptive conduct, and containing implied warranties.
In our next post, we will consider mandatory inclusions of a statement of advice.