A legal row is brewing across the Tasman with niche adviser organisations battling the Australian regulator over a recent ruling restricting use of terms implying ‘independence’.
According to media reports, two adviser groups – the Association of Financial Advisers (AFA) and the Association of Independently Owned Financial Professionals (AIOFP) – have began lobbying for a repeal of Section 923A of the Corporations Act, which tightly-restricts the use of words such as ‘independent’ by financial services firms.
The AFA is weighted towards life insurance advisers while the AIOFP operates more like a buyers group for like-minded advisory firms.
In a ruling published at the end of June, the Australian Securities and Investments Commission (ASIC) said only advisory firms with zero product-issuer conflicts could only use “words such as ‘independently owned’, ‘non-aligned’ and ‘non-institutionally owned’, and other similar words or expressions”.
“… if the financial adviser does receive commissions or operates with conflicts of interest, then they will not be permitted to use the term ‘independently owned’ or other like words or expressions,” the ASIC release says.
The Australian regulator’s bar for non-independence also extends to the use of approved product lists (APLs) by advisory firms
“The very nature of an APL, which restricts a representative from recommending products not on the APL, is restrictive,” ASIC says, while allowing some wriggle-room where the approved list is sufficiently broad and/or flexible.
Peter Kell, ASIC deputy chair, said in a statement ‘independence’ of financial advisers was an “important issue for consumers”.
“Consumers must not be misled into believing that an adviser is independent and free from influence when that is not the case,” Kell said. “This is why the Corporations Act puts strong conditions around the use of ‘independent’ and similar word and phrases.”
Under the law, ‘independent’, ‘impartial’, and ‘unbiased’, are listed specifically in the law as restricted along with any other words “of like import”. ASIC says while use of the three specific words remains for restricted use only, it would allow a grace period for advisory firms improperly using related phrases to comply.
“In light of that uncertainty, we will provide a facilitative compliance period of six months so that advice firms that do not satisfy the [legal] conditions… can change websites and documents to remove terms such as ‘independently owned’, ‘non-aligned’ or ‘non-institutionally owned’,” ASIC says.
Despite the AFA and AIOFP campaigning to legally overturn the ASIC ruling, other industry bodies, including the Financial Planning Association (FPA), have endorsed the regulator’s position.
A spokesperson for the Financial Markets Authority (FMA) said the NZ regulator already had broad powers to police adviser claims of ‘independence’ – implied or otherwise.
“Under the code of professional conduct for authorised financial advisers, which came into force in 2010, an adviser must not state or imply they or the services they provide are independent if a reasonable person as a client would not consider that to be the case,” the FMA spokesperson said.
“The FMA is able to investigate any adviser who may breach that code of conduct. Breaches of the code of conduct are investigated, and where appropriate, referred to the FADC.”
To date, the relevant clause, Code Standard 3, has not been tested in any of the six published FADC hearings held since inception in 20134.