Q: We are a dealer group (licensee) that has transitioned pursuant to the Financial Services Reform (FSR) regime and are now assessing our client risk management procedures. In particular, we are looking at the use of disclaimers. Are disclaimers stilleffective under the post-FSR law?
A: Disclaimers can be an effective legal risk management tool but they cannot replace quality professional practice. In the post-FSR environment there are two issues to keep in mind when drafting disclaimers; new Section 951aand theAustralian Securities and Investments Commission’s (ASIC) views on limiting client liability.
For those who aren’t aware, Section 951aprovides:
“A condition of a contract for the acquisition of a financial product, or for the provision of a financial service, is void if it provides that a party to the contract is:
(a) required or bound to waive compliance with any requirement of this Part; or
(b) taken to have notice of any contract, document or matter not specifically referred to in a Financial Services Guide, Statement of Advice or other document given to the party.”
Only time will tell us exactly what this section means for a financial services business. Certainly, any disclaimer that falls within the grasp of Section 951awill fail, because it is void, it is of no legal effect.
When drafting your disclaimers, you must also bear in mind ASIC’s views. In the past it has placed banning orders on an authorised representative based on its belief that the authorised representative, among other things, “sought to contract out of his responsibilities, obligations and liabilities to his clients” (ASIC media release 03-029from January this year). Obviously, what the representative aimed to do was to disclaim liability to clients and ASIC did not like it.
What did the representative’s disclaimer say? We do not know. Unfortunately, the ASIC press release is light on detail on this issue. Maybe he simply went too far, beyond what the law would have allowed him to do and ASIC did not like this. If that is the view, then we agree with ASIC because it is leaving the client with the wrong impression as to their rights.
Does all of the above mean that we can no longer use disclaimers with clients?
No, they still have a place, especially where they draw the client’s attention to their role in the financial planning process and relationship.
In our experience, it is often the case that the author of the disclaimer goes too far to make them effective. When drafting disclaimers the author should always bear in mind what can and can’t be disclaimed at law. You cannot disclaim your fundamental responsibilities, obligations and liabilities upon which your agreement lies.
Disclaimers also need to be measured against the special relationships that exist in the industry.
The relationship between an authorised representative and licensee and their client is that of a fiduciary relationship. This means that the duty owed to the client is of a higher standard than the relationship between two contracting parties.
Are disclaimers still effective under the post-FSR law? Yes, they still have a place, you can still disclaim all ancillary responsibilities and liabilities, provided you also steer clearly through the new Section 951aissues.
Send your FSR question toeditor@moneymanagement.com.au—the noblest question will not only receive an answer, but a bottle of de Bortoli Noble One.
