Many financial planners are still unaware they could face hefty fines or even jail terms for not providing ‘wholistic, appropriate or reasonable’ advice to their clients under the Financial Services Reform Act (FSRA), a leading lawyer has claimed.
According to Alan Jessup, a partner with law firmHunt and Hunt, many financial planners are unaware that Section 945A of the FSRA, which outlines guidelines for obtaining client information before providing financial advice, carries fines of up to $22,000 and jail terms of up to five years.
“After talking to people in the industry it seems that [Section 945A] hasn’t come home to them,” Jessup says.
Under the provision, advisers must determine and take into consideration each client’s individual circumstances before handing out financial advice.
To do this they must make reasonable enquiries and conduct a proper investigation to ensure the advice they provide is reasonable and appropriate given those personal circumstances.
Jessup says the requirement for advice to be both ‘reasonable and ‘appropriate’ places an onerous responsibility on financial planners.
“The fact that Section 945A uses the word ‘reasonable’ throughout is bound to create arguments about what was ‘reasonable’ in any particular circumstances. If providers are not careful, they could find themselves prosecuted by theAustralian Securities and Investments Commission(ASIC),” he says.
ASIC director of FSR licensing Pauline Vamos says the watchdog has placed great emphasis on informing planners about Section 945A.
However, Vamos admits there is some concern within ASIC that planners are not aware the provision now carries criminal consequences.
“The requirement to provide advice on a reasonable basis has been there for years – since the Corporations Act,” Vamos says.
“But [the criminal consequences] are now pretty serious and planners have got to think about it.”
According to Jessup, the provision will force many financial planners to warn clients that the advice they offer is based only on the information the client themselves has provided them, throwing the onus back onto clients to decide if the advice is appropriate.
“Essentially contracting out of the liability by giving the required warning is lawful but will not deliver the sort of service for which many clients are looking,” Jessup says.
