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ASIC WARNING and an obvious CONFERENCE QUESTION!!

Below is a letter from ASIC EXECUTIVE TEAM LEADER – ADVICE Joanna Bird about the recent FINDEX prosecution and the potential ramifications for all practices. Joanna has asked us to warn all members of the circumstances.

You will note also that ASIC are seeking a legal opinion on banning ANY practice from using the term INDEPENDENTLY OWNED if they are not s923a compliant. We hope this will be qualified by our November conference where Joanna will be speaking.

Our previous legal advice has been stating you are a member of the AIOFP has been compliant and does not contravene the Act.

An interesting area is where practices are technically ‘independently owned’ BUT the advisers are licensed to an Institution is an anomaly that needs to be looked at to avoid further confusing consumers.

Peter Johnston

Email from Joanna Bird

Thank you for your email. You have asked whether the term ‘independently owned’ is now not permitted to be used by a person who does not meet the conditions of s923A of the Corporations Act 2001 (Corporations Act). I understand that your concern stems from the recent infringement notices ASIC issued (on 26 August 2016) to Findex Group Limited and Financial Index Australia Pty Ltd (Findex).

Findex

It is important to note that the Findex matter does not address whether the term ‘independently owned’ is prohibited under s923A of the Corporations Act, because the Findex matter was about:

  • the use of the words ‘independent’ and ‘non-aligned’, not ‘independently owned’; and
  • the contravention of the false and misleading provisions of the Australian Securities and Investments Commission Act 2001 (ASIC Act), not s923A.

The infringement notices were issued based on ASIC having reasonable grounds to believe that Findex had made false or misleading representations in contravention of paragraph 12DB(1)(a) of the ASIC Act. ASIC believed that the use of the words ‘independent’ and ‘non-aligned’ on Findex’s website were false and misleading because:

  • · they suggested the services offered by Findex were not influenced by outside parties or any conflict of interest, when in fact, entities within the group receive commissions for certain services;
  • · the representations prevented a consumer from correctly assessing the quality of the services; and
  • · the representations could induce consumers to seek the services of Findex on the pretence that any advice received would not be affected by any commissions.

‘Independently owned’

As you would already know, s923A, in short, prohibits a person from using certain restricted words and expressions in a financial services business or in the provision of a financial service unless the person:

  • does not receive commissions (apart from commissions that are rebated in full), volume-based remuneration, or other gifts or benefits from product issuers which may reasonably be expected to influence that person; and
  • The person is free from conflicts of interest that might arise from any relationships with product issuers and which might reasonably be expected to influence the person.

Section 923A(5)(a) specifies that the words ‘independent’, ‘impartial’ and ‘unbiased’ are restricted words for the purposes of s923A. Use of those words as part of another word or expression is also restricted: s923A(5)(b).

It is not clear whether s923A prohibits the use of the term ‘independently owned’ if all the conditions in s923A are not met. This provision has not yet been litigated, so we do not have a settled meaning. In the past, ASIC has taken the view that it will administer s923A on the basis that licensees and their authorised representatives (ARs) can use the term ‘independently owned’ even if all the conditions in s923A are not met. However, given the increasing importance of this issue, we have decided to seek external legal advice. If that advice suggests that the use of the term ‘independently owned’ can only be used if all the conditions in s923A are met, we will communicate this publicly and to the AIOFP’s members, and allow sufficient time for licensees and ARs to amend their websites and documents.

Next steps

As noted above, we will be seeking external legal advice on the extent of s923A. We will let you know the outcome in due course.

Meanwhile, it would be useful if you could draw the Findex matter to your members’ attention, and ask them to ensure they do not make any false and misleading representations around their independence and the independence of their advice, especially where they issue or “white label” products and recommend these products to their clients.