The financial services industry is increasingly using a ‘one stop shop’ model whereby a licensee will offer a wide range of services to retail clients, some provided by the licensee and some provided by another licensee through, for example, a referral arrangement.
A common example of this is where a licensee offers advice and share dealing services through a stockbroker.
In these circumstances, it is important that clients understand who they are dealing with and what arrangements are involved before they make a decision to obtain these services.
The law has a number of requirements about how licensees may advertise services from other licensees to prospective and existing clients. These include the requirements that apply to Financial Services Guides (FSGs), the general licensing requirement to provide services efficiently, honestly and fairly, and the prohibition on engaging in misleading and deceptive conduct.
The practical effect of these requirements is that any marketing of services provided by another licensee must make it clear which services the licensee itself is providing and which services are to be provided by another licensee.
FSG and other promotional material
An FSG must set out the name, licence number and contact details of the licensee, as well as information about any services the licensee is authorised to provide under its licence. The FSG must also set out information about any associations or relationships the licensee has with any other parties that might be capable of influencing it when providing these services.
The FSG must give information on remuneration arrangements, including commissions or any other benefits that the licensee or any related parties might receive as a result of the licensee’s provision of the financial services.
This means that if a licensee has a referral arrangement with another licensee, this should be explained in the FSG as well as any commission entitlements that may flow from the arrangement.
The licensee must ensure that its promotional material does not contain any misleading information about the services being provided. The material should not suggest, for example, that the licensee is providing stockbroking services if those services are being provided by another licensee.
In addition to these requirements about what clients must be told in FSGs, the law also prohibits licensees from using certain expressions such as ‘stockbroker’, ‘futures broker’ and ‘insurance broker’ when marketing their services — unless their licence has an authorisation that permits them to provide these services. In the case of stockbrokers, Australian Securities Exchange (ASX) governed eligibility requirements must also be met. There is also a prohibition on using expressions that convey a similar impression or give information in a format that might create the wrong impression about who is providing the services.
ASIC’s compliance reviews
The increasing range of services being offered by licensees and the complexity of some of the arrangements has meant that we have had to increase our scrutiny in this area. ASIC routinely reviews websites and promotional material about the services being offered, and we also monitor other media such as television, radio and large and small newspapers. In addition, we act on intelligence provided by other licensees and complaints from client investors.
In ASIC’s reviews, we check what a licensee is authorised to do under its licence and compare this with what it may be advertising on websites and in other promotional material. If there appears to be a discrepancy, we will look at the arrangements between the licensee and any third party licensees and, if necessary, ask the licensee to remove any offending material — or supplement the material — to make the arrangements clear.
We will particularly focus on issues like professional indemnity insurance, complaints handling or the ability to make a claim on the ASX National Guarantee Fund.
What ASIC have found
Many licensees are careful about the services they advertise and obviously obtain legal sign off on their promotional material. At the same time, we have also seen two worrying trends:
> licensees not making it clear that they offer services that are actually provided by other licensees; and
> licensees suggesting, expressly or implied, that they are a stockbroker or an insurance broker when they are not.
We have generally found that licensees are cooperative when we have asked them to amend websites or other promotional material. However, licensees must be mindful of their obligations and ensure that clients know exactly who they are dealing with.
For more guidance, see Regulatory Guide 175 Licensing: Financial product advisers—Conduct and disclosure (RG 175), available at www.asic.gov.au/rg.
Jennifer O’Donnell is executive director, Compliance Directorate, Australian Securities and Investments Commission (ASIC).