ASIC has clarified its position on when financial advisers can call themselves “independently owned” under section 923A of the Corporations Act because of their ownership structure and whether receipt of asset-based fees or use of an Approved Products List means they are not “independent”.
UPDATE 14 November 2017: ASIC has updated Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (RG 175), to include guidance that terms such as ‘independently owned’, ‘non-aligned’ and ‘non-institutionally owned’ are restricted under the Corporations Act.
Section 923A provides that financial service providers can only use certain restricted words and expressions if they do not receive commissions, volume-based payments, or other gifts or benefits, and operate without any conflicts of interest.
While words such as ‘independent’, ‘impartial’, and ‘unbiased’ are specified as restricted words in s923A, there was some uncertainty about whether words such as ‘independently owned’ were also restricted when they were used to describe the ownership and structure of the financial service provider.
ASIC’s position is that words such as ‘independently owned’, ‘non-aligned’ and ‘non-institutionally owned’, and other similar words or expressions, can be used only if a financial adviser does not receive any commissions or volume-based payments, or other gifts or benefits and has no conflicts of interest or influence from any product issuer.
ASIC’s view is that these terms can mislead or confuse a consumer as to the nature of the financial service provider’s connection to the financial product issuer.
ASIC will provide a facilitative compliance period of six months so that advice firms that do not satisfy the conditions in s923A can change websites and documents to remove terms such as ‘independently owned’, ‘non-aligned’ or ‘non-institutionally owned’.
Financial service providers who receive asset-based fees are not prevented from using restricted terms such as ‘independent’ merely because of their receipt of asset-based fees.
Approved Product Lists (APLs) are commonly used by licensees to provide a list of financial products for their representatives to consider when providing advice to their clients.
ASIC’s view is that when the APL is used as an open list of products or where there is an easy process to recommend a product that is not on the APL the restriction is less likely to prevent a financial service provider from calling themselves independent (assuming all the other conditions in s923A are met). When the off-APL process is not easy to access, it is more likely to be considered a restriction, and as such, the financial service provider would not be permitted to use a restricted term.
