Are you fully aware of the legal guidelines you need to follow in order to provide financial advice or arrange insurance for your clients?
- Do Strata Managers need to become an Authorised Representative?
The Financial Service Reform Act 2001 changed many things in regards to giving advice. Prior to this Act, Strata Managers could arrange insurance and deal directly with insurers. As a result of the Act, Strata Managers dealing with “retail” clients now need to be trained and then legally appointed as either an Authorised Representative (AR) or a Distributor of an Australian Financial Service licensee (AFSL) in order to carry out these financial service based activities.
Owners Corporations have been directly affected by the Act as they are considered a “retail” client when purchasing residential building insurance, common contents insurance, voluntary workers, and catastrophe insurance. Once appointed, ARs are able to arrange insurance on behalf of their clients, but will be subject to ongoing training, monitoring and supervision (including audits). As an AR of an AFS licensee, the licensee must provide Professional Indemnity Insurance protection for the activities carried out by the Strata Manager, whilst they are acting within the authority provided by the licensee. Depending on whether you are a Distributor or an AR, the financial product advice you are allowed to provide to your client varies. A summary is displayed in the diagram.
While this is generally correct across the board, there can be exceptions. Representatives are advised to check with their licensee as to what advice they are legally allowed to give.
- What advice can an Authorised Representative provide?
As an AR you can provide Factual Information as well as General Advice. Legally you are not authorised to give Personal Advice – you can give factual Information and general advice only. This means that you can’t advise on what is individually suitable, or make a recommendation tailored to a client’s personal circumstances.
- What advice can a Distributor provide?
As a Distributor you are legally only able to provide Factual Information about the insurer and the owner’s corporation insurance. Factual information v General Advice v Personal Advice.
Factual Information is an objective statement of fact and can be provided by anyone as it is not regarded “financial service”. ARs and Distributors may legally provide this information.
General Advice is classified as advice or an opinion, and may influence the client’s decision about insurance. ARs can legally provide this advice BUT Distributors cannot.
Personal Advice is advice where one or more of the client’s objectives, financial situation and needs has been considered. Neither ARs nor Distributors are legally authorised to provide this advice.
- Can I become an Authorised Representative of more than one licensee?
Under current legislation a person can be an AR of two or more financial services licensees, but only in cases where each of those licensees has consented. The process of multiple licensees providing mutual consent is commonly referred to as cross endorsement. If a client directs you to deal with a broker or insurer with whom you have no agreement or legal authority, you may only refer your client’s details to that broker or insurer. You are not able to make any decisions or provide any advice.
- Disclosure Requirements
Both Licensees and ARs must provide a Financial Service Guide (FSG) which outlines many of the activities the representatives will undertake. The FSG provides clients with the information needed to decide whether they wish to proceed in using the services offered. The FSG makes clear details of all of the remuneration of licensees and their representatives (financial and non-financial). Please note: ARs have a different FSG to that of the licensee. ARs must provide the AR specific FSG version to clients. Severe penalties may apply for failing to provide an FSG – fines can reach up to $11,000 for an individual or $68,000 for a corporation, and up to 2 years imprisonment. Providing a defective FSG can result in a fine up to $136,000. Mandatory disclosure requirements Whether you are an AR, a Distributor, or an Australian Financial Services Licence (AFSL) holder, you are legally required to provide all retail clients with the following documentation;
- Financial Services Guide (FSG)
- Product Disclosure Statement (PDS)
- General Advice Warning (GAW) or the
- Statement of Advice (SOA)