ASIC has clarified its position on the use of restricted terms relating to the independence of financial advisers after seeking external legal advice on whether phrases such as ‘independently owned’ are restricted terms under s923A of the Corporations Act (the 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.
Following external legal advice, our 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 satisfies the conditions set out in s923A. This means that 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, then they can describe themselves as being ‘independently owned’. However, 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.
Deputy Chairman, Peter Kell said, ‘The independence of financial advisers is an important issue for consumers and investors, and may sway their decisions about their investments or their choice of adviser. Consumers must not be misled into believing that an adviser is independent and free from influence when that is not the case. This is why the Corporations Act puts strong conditions around the use of ‘independent’ and similar word and phrases’.
ASIC acknowledges that there has been uncertainty in the financial advice industry about whether terms such as ‘independently owned’ and ‘non-aligned’ are restricted terms under s923A. In light of that uncertainty, we 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’.
The facilitative compliance period will not extend to contraventions of s923A where the specified restricted terms ‘independent’, ‘impartial’, and ‘unbiased’ are used. ASIC considers that there has been no uncertainty about how s923A applies to these terms and ASIC will continue to take action against financial service providers for using these terms in breach of s923A.
We have notified key interested stakeholders about our position on s923A by letter. We will also update Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (RG 175) to give further guidance on how to comply with s923A.
The attachment to this media release also includes a brief ‘Q and A’ for industry participants about our clarification of the provision.