Financial Planning Assignment: Evaluation of Economic & Legal Context
Question
Task:
Section A
There are four (4) questions in this section of financial planning assignment. The questions will build on the themes and approach you have used in the analysis task.
Case study: Purchasing a property and investing
You are a fully qualified financial planner with 10 years’ experience.
Jane is concerned about the financial wellbeing of her parents, Jill and Marcus Kurmond. They are both 62 years old and have recently had a discussion with Jane about their possible retirement aspirations. They have never used a financial planner before and Jane suggested they get some advice from you so that they may put some strategies in place enabling them to achieve their retirement goals. With their consent, she has collected the following information for you ahead of a meeting they have scheduled with you:
• Marcus is a construction worker and project manager, and his income before tax is $150,000 per annum. Jill works as an administrative assistant and earns $50,000 p.a. before tax.
• Marcus has a superannuation balance of $350,000 invested in a high growth fund. Jill’s superannuation balance is $120,000 and is currently invested in a growth fund.
• They recently sold the family home, purchased 20 years ago for $1,200,000 and are looking to downsize (i.e. purchase another smaller home). They are currently living at Jill’s sisters’ home, who is away for 12 months. They are not paying any rent.
• They would like to retire in four years’ time and will need $60,000 p.a. for living costs.
• They have no debt and have $150,000 cash in the bank.
• The proceeds of the family home are reserved for the purchase of their new, smaller property, with any funds left over intended to be kept as an emergency reserve for house repairs and renovations as required.
Question 1
In November 2020, the Reserve Bank of Australia (RBA) announced a package of monetary measures to “support job creation and the recovery of the Australian economy from the pandemic”.
The key elements of the package are:
• a reduction in the cash rate target to 0.1 per cent
• a reduction in the target for the yield on the 3-year Australian Government bond to around 0.1 per cent
• a reduction in the interest rate on new drawings under the Term Funding Facility to 0.1 per cent
• a reduction in the interest rate on Exchange Settlement balances to zero
• the purchase of $100 billion of government bonds of maturities of around 5 to 10 years over the next six months.
(a) Discuss how these measures might impact Jill and Marcus’s goals and objectives.
(b) The RBA statement also states that:
“In the central scenario, GDP growth is expected to be around 6 per cent over the year to June 2021 and 4 per cent in 2022. The unemployment rate is expected to remain high, but to peak at a little below 8 per cent, rather than the 10 per cent expected previously. At the end of 2022, the unemployment rate is forecast to be around 6 per cent.”
For each of the regulatory bodies listed below:
• Briefly discuss its role and function, and
• Explain what role, if any, the regulatory body has to play in maintaining or increasing GDP growth, and keeping the unemployment rate below 10%, as outlined in the RBA’s quote above.
All regulatory bodies must be considered in your answer.
(i) ASIC
(ii) APRA
(iii) ASX
(iv) ACCC
(v) AUSTRAC
Question 2
Identify four (4) obligations placed on financial services providers under the current legislative and regulatory framework aimed at ensuring that consumers, like Jane and her parents, Jill and Marcus, are protected and receive appropriate financial advice.
Discuss the legislative and/or regulatory source of these obligations and how the obligations are intended to protect consumers. Students may include legislative and regulatory framework obligations which are legislated but not yet implemented.
Question 3
Define ‘sequencing risk’ in relation to retirement planning and describe how market conditions over the accumulation phase of saving for retirement can affect retirement outcomes. How might this risk affect the retirement goals of Marcus and Jill?
Include in your answer the following:
• definition of sequencing risk, with two examples provided
• four (4) ways to mitigate against sequencing risk
• brief analysis of Marcus and Jill’s financial situation
• implications of market forces on Marcus and Jill’s desired retirement age and funding requirements. The response should take into account the impact of COVID-19 on financial markets during 2020.
Question 4
Analyse the impact of government and monetary policy on the Australian financial markets.
Given the potential for government policy changes to both the superannuation and social security systems, discuss the possible impacts of such changes on Jill and Marcus’s planning for retirement. Please provide discussion on the following points in your answer:
Superannuation system:
1. Discuss the impact of changes to the superannuation system that were made during 2020.
2. Discuss the potential range of future changes to superannuation.
3. Discuss how these potential future changes might affect Jill and Marcus’s retirement planning. Social security system:
1. Discuss changes to the social security system that were made during 2020.
2. Discuss the potential range of future changes to social security.
3. Discuss how potential future changes might affect Jill and Marcus’s retirement planning.
Section B
There is one (1) question with multiple parts in this section of financial planning assignment. Answer all questions.
Question 5: Regulatory requirements
Bettina and Gordon are both senior traders at a major stockbroking firm, Avalanche Stockbroking. Bettina has worked in Australian equities for 10 years and Gordon has 15 years’ experience in international equities. Bettina has a commerce degree, whereas Gordon demonstrated an aptitude for finance at a young age and was first employed by Avalanche in a junior position after high school. Bettina and Gordon have maintained their skills in their specific areas through internal and external seminars as well as training throughout their careers.
Bettina and Gordon decided to leave Avalanche in October 2020 and set up their own boutique asset management business, Winsome Financial (Winsome), providing full service broking of Australian and international equities.
Note: Winsome will not be seeking a licence to act as a stockbroker in its own name.
The business will initially target superannuation funds and ‘sophisticated’ high net worth individuals as its clients. It will manage the funds of these clients in both discrete mandates and a pooled fund for each type of equity (Australian and international). They engage you as a consultant to their business while they transition from Avalanche.
Explain the following to Bettina and Gordon:
(a) What authorisations is Winsome likely to need in its Australian financial services licence (AFSL) and why?
(b) (i) What training and competencies will Winsome need to demonstrate collectively in order to obtain an AFSL?
(ii) Is Winsome likely to have the expertise and experience required to obtain an AFSL? If you do not have sufficient information to advise them, what additional information do you need to make a decision?
(c) Assuming Winsome decides to expand their market to include retail clients before 31 December 2020, what will Winsome be required to do?
(d) Outline three significant disclosure obligations that Winsome will have to meet as part of its disclosure regime once it provides services to a retail clientele.
(e) If Winsome fails to meet its disclosure obligations to its new clients, what are two possible outcomes ASIC might seek against Winsome? Refer to relevant legislative provisions in your answer.
Answer
Impact on Jill and Marcus goals
Monetary measures are the policies adopted to control the money supply in the economy. The central bank limits the money supply during inflation and increases the supply in deflation (Ampudia et al., 2018). The covid-19 has impacted the national economy and the finance system of the country. Hence, the Reserve Bank of Australia (RBA) has taken measures to boost the economy and support employment. The measures that are taken by the RBA increases the money supply in the economy. The measures taken by the RBA will impact the savings in the bank. The cash ratereduction to 0.1 will decrease bank interest earned by the citizens, and it will impact the savings of Jill and Marcus. Superannuation funds will contribute to their retirement plans as it grow their pension funds. However, house property prices would be increasing in the scenario, and they might require more funds to acquire a house property. These are some of the impacts of monetary policy on Jill and Marcus' objectives.
Roles and functions
Australian Securities and Investments Commission (ASIC)
It is a statutory body formed under ASIC Act 2001. The primary responsibility of the ASIC is maintaining and improving the performance of the country's financial markets. It ensures the efficiency of the financial market through regulations and a reduced number of procedures. Further, it collects, stores, and circulates necessary information of companies to stakeholders. It facilitates GDP growth by ensuring the flow of funds to the real economy (Isaeva and Leshchenko, 2019).
The regulatory bodies restrict the capital, labour, technology, and other amenities to shape up the living standards of the future. These inputs change the GDP growth and fund flows. Also, the Regulatory has implemented fiscal policies that can support generation of employment opportunities for people in the future. The pandemic has increased the unemployment rate, however, the increase in government spending will aim to increase the GDP in future. It will assist in the reduction in unemployment rate (Isaeva and Leshchenko, 2019).
Australian Prudential Regulation Authority (APRA)
APRA is one of the statutory bodies regulating banking insurance and superannuation financial services in the Australian economy. It was formed under APRA Act 1998 and is accountable to the Australian Parliament. It monitors the activities of the financial institutions and operations of these organizations in the economy. Prudential regulation deals with the fairness of financial institutions in meeting the public requirements. It ensures the institutions meet their obligations without compromising to the depositors and policyholders (Isaeva and Leshchenko, 2019). Assurance of long-term well-being and stability of the financial system facilitates the GDP growth in the country.
Australia Securities Exchange (ASX)
The ASX was formed in 2006 by the merger of Australian Stock Exchange and Sydney Futures Exchange. It is an integrated stock exchange, and its functions include a listing of companies, trading of shares, clearings, and post-trade services. Consumption of consumers and business, exports, and government spending impact the stock market, and it reflects in the country's GDP growth (Isaeva and Leshchenko, 2019). When the economy is circulated with more money, it will increase the spending and thus the performance of companies. Thus, ASX contributes to GDP growth in the country.
Australian Competition and Consumer Commission (ACCC)
ACCC is a statutory body obliged for the enforcement of the Competition and Consumer Act 2010 and other trade regulations. It ensures the safety of consumers and facilitates fair competition in the market. The welfare of consumers and producers in the market is assured through the activities of the regulatory body (Isaeva and Leshchenko, 2019). The body increases the efficiency of the market and thereby contributes to economic growth.
Australian Transaction Reports and Analysis Centre (AUSTRAC)
It is an agency by the government that monitors fraudulent activities in the Australian financial system. They collect the financial reports from various organizations and analyse them to detect fraud or malpractice in the financial system to make profits. It scans the country's money laundering activities and terrorism financing and formulates policies to eliminate both activities. Reduced severe and organised crime will improve the efficiency of financial management in an organization (Isaeva and Leshchenko, 2019). Further, the advanced use of intelligence systems will enhance the technology in the country. Thus, AUSTRAC contributes to the economic growth of Australia.
Answer2
The four obligations are discussed below-
Contractual obligations
Every transaction that takes place is under the guidance of a contract. An agreement can be an enforceable contract if it has been taken under the following elements that are as follows-
• There is an agreement which means one party should offer and other party should agree.
• The document must be sealed.
• A legal relation must be created.
• Both the parties have provided their consent.
The duty of the financial service provider is to comply with the contractual obligations. A contractual obligation is formed when the financial service provider is given the authorization to act on the behalf of the other person (Treasury.gov.au, 2021). For an instance, in this case Jane and her parents are under the contract with the financial service provider to receive appropriate advice.
Duty to due skill, care and diligence
A financial service provider must possess special skills and expertise that will be dispersed to the client when he or she requires the advice of the financial service provider. In order to carry out the business the financial service provider is required to use his or her skills, care, and diligence to carry out the business and then demonstrate the level of competence.
The FSP has the statutory duty in accordance to the 961B of the Corporations Act to act under the client’s best interest while giving advice (Treasury.gov.au, 2021). In order to satisfy this requirement, the provider must do the following-
• Identification of the financial situation, objectives, and the customer needs that is given by the provider to the client.
• The crux of the matter should be identified in which the advice is sought to. The financial situation and the clients need would be reasonable considered as the relevant subject matter.
• Reasonable inquiries should be made to obtain the complete and provide information where it is apparent that the client’s information is incomplete.
• The judgements should be based on the relevant circumstances of the client.
Fiduciary relationship duties-conflict of interest
The courts recognized the fact that there is a certain class of people who are falling under the category of the fiduciary relationship (Treasury.gov.au, 2021). For an instance, solicitor, client, trustee, and beneficiary. In the given case, there will be a fiduciary relationship established in between Jane and her parents with the financial service provider. The financial service provider will advice the clients on financial matters and will undertake the role of a financial advisory for Jane and her parents.
Fiduciary relationship duties-confidentiality
The financial service provider must keep all the affairs of the Jane and her parents to himself (Treasury.gov.au, 2021). Breach of this obligation will hold its place where it has been found that the financial service provider has disclosed that the client has bought or sold shares.
Answer3
Sequencing risk
Therisks formed in a sequence in which the decreased returns and withdrawal of huge amounts adversely impact the portfolio's value. Sequencing risk is the risk that impacts the retirement policies of individuals. The investment plans of the individuals turn to unfavourable conditions over time, and it results in less cash flow at the time of retirement. Sequencing risk reflects an investment when both market and cash flows are volatile (So?dek and Stachnio, 2018). The return from the investment will tend to decrease or increase in an unidentifiable manner, and it will impact the returns. If the ROI increase, then the return will increase automatically.
Sequencing risk tends to be high when the investor starts depending on the investment as the only income source. In addition, changes in monetary policy such as interest rates and exchange rates will impact the value of investments (So?dek and Stachnio, 2018).
Example 1: the bearish market condition at the age of 40 has an increased period to correct the losses before the retirement age of 60. The 25-year period will help the investor making gains and reducing the impact of loss. Hence, the sequencing risk is considerably low.
Example 2: The bearish market condition or reduced interest rate to increase the supply of money in the market will increase the sequencing risk. The individual at the age of 60 exposed to a bearish market condition will suffer an increased loss from portfolio or investment. The 5-year period before retirement will not make enough profits, and the withdrawal of sums will decrease the returns despite a bullish market after five years.
Ways to mitigate sequencing risk
Sequencing risk is considered as one of the risks which impact the retirement funds of individuals severely. Following are the ways to mitigate sequencing risk:
1. Limited withdrawal: Individuals can reduce the amount they withdraw from the retirement funds. A reduced withdrawal will reduce the impact of sequencing risk. Therefore, 4% withdrawal from funds is recommended because a reduced withdrawal limit will not make much impact on retirement funds (Hopkins, 2021).
2. Home equity: One of the ways to mitigate the sequencing risk is concentrating on home equity. It is known that many investors and retirement-aged people take mortgages over the houses and downsize their houses. The amount left after downsizing will be used for the emergency, and amounts from mortgages are used to reinvest for an improved interest rate (Hopkins, 2021). However, mortgaging brings the risk of borrowing, and it harms future receivables.
3. Bond ladders: investing in fixed income-bearing securities is another way to mitigate the sequencing risk. Individuals can invest in bonds that have different maturity rates and can receive income and yield at maturity. Bond laddering means withdrawing money from investments which are returns, and purchasing bonds with such money to earn a regular income over some time. Bond laddering has reduced risk and will act as a regular source of income to retired individuals (Hopkins, 2021). Thus, they can decrease the dependency on retirement funds.
4. Bucketing of assets: individuals segregate the available assets for various purposes and meet their short-term and long-term requirements. For instance, individuals use their cash reserves to meet contingency or short-term requirements, whereas equities satisfy their long-term needs. Further, it helps individuals with advanced planning. The impact of a bearish market can be overcome with the help of reserved cash in the hand of individuals (Hopkins, 2021). The evolvement of a bearish market will make the individual use the reserved cash and not depend on the equities in the meantime for revival.
These are some of the methods for reducing the sequencing risk in retirement funds.
Analysis of the financial situation
Jill and Marcus are working individuals, but they are about to retire in a few years. Before retirement, they sold their house as a part to mitigate the sequencing risk through house equity. It was also known that they are reserving the leftovers from downsizing to meet emergencies and other repairs and renewals. They have cash deposits in the bank and are free from debts. Further, both have superannuation and invested in growth funds. It was also estimated that they need $60,000 per annum to live after retirement. The changes to the monetary policy will impact the reserved funds of Jill and Marcus. The reduced interest rates and exchange rates will impact the superannuation funds, decreasing the accrued interest on bank deposits. Further, they do not have any investments in bonds, and hence they cannot obtain benefits from the government bond purchase policies (Ampudia et al., 2018). Therefore, it can be concluded that they need to contribute more to their superannuation and must reserve cash to meet their requirements in the future.
Impacts of market forces
Covid-19 has adversely impacted the financial market as it has increased the market risk of investors. The indexes have fallen and experienced a fall in returns. The markets have risen after the second wave, and the government announced new monetary policies to stabilize the economy (Higginson et al., 2020). The policies are made to bring back the efficiency of the companies in terms of production and to circulate more money in the economy. The RBA has reduced the borrowing cost and announced to take back the government bonds from the individuals. The decreased interest rate will allow the public to borrow more and to spend; meanwhile, the purchase of bonds from the public will stimulate the money supply in the market. However, the policies will impact the savings in the bank and superannuation funds (Sy, 2018). Marcus and Jill will retire after four years, and the superannuation contributions were invested in growth funds. Covid-19 has impacted the overall economy, and it has impacted the income and retirement funds of both Jill and Marcus.
The superannuation funds are impacted due to the monetary policies of the RBA.
• The reduced exchange rates will adversely affect the growth of superannuation funds. Further, they have savings in the bank, and it gets impacted due to the decreased bank rates as per the new monetary policy of the government.
• These are some of the implications on the economy due to covid-29 and market forces on the plans of Jill and Marcus.
Answer4
Superannuation system:
1. The impact of the changes in thesystemof superannuation are discussed below-
i. Incremental work test age: From 2020,voluntary contributions can be made by an individual into the superannuation without complying with the work test. The age for this is set at 67 years which was previously 65 years (australianunity.com.au, 2021). Therefore, employees will have two more years to contribute their superannuation funds.
ii. Increase in age limit for contributions of the spouse: The Australian government has increased the limit of age to allow people up to 75 years of age to receive contribution to spouse. Before this reform was made, the spouse contribution was not availed to the spouse who has reached 70 years of age (australianunity.com.au, 2021). This reform will benefit the people by allowing them access to the spouse contribution offset.
iii. Temporary early access to superannuation: If an individual suffered financially due to COVID-19, then an individual will be able to access $10000 from the superannuation fund from 1st July 2020 to 24th September 2020 (australianunity.com.au, 2021). Such a reform in the superannuation system will assist the bereaved individuals in maintaining financial stability during the economic crisis during the pandemic.
2. Potential range for future changes in superannuation are mentioned below-
i. Increase in salary payments: The salary payment is recommended to increase from 9.5% to 12% by 2025 (Aware Super, 2021). It will assist in continuation of funds, and the level of contributions will help increase the savings, and therefore, the income during retirement will increase.
ii. Reforms of lower-income groups: The threshold of $450 paid monthly will be removed (Aware Super, 2021). Since the country has faced an economic crisis, the average income of individuals has decreased. Hence the employees earning less than $450 per month need not compulsorily pay higher superannuation funds.
iii. Simplification of superannuation system: Incorporating digital advice and guidance will assist clients in understanding the superannuation structure. It will assist the individuals in earning higher long-term savings.
3. Impact of the changes in the life of Jill and Marcus’s retirement planning are discussed below-
i. If the salary payment from Jill and Marcus increases, then at the time of retirement, they will receive a higher retirement fund.
ii. Jill and Marcus, who have reached out to the financial service providers to understand and plan their superannuation structure.Itwill be greatly assisted if the superannuation system is fully accessible digitally. They will be able to track their funds, and the idea of superannuation will broaden.
Social security system:
1. Changes in the social security system are mentioned below-
i. Two support payments of $250: In the 2020-2021 Budget, the Australian Government disclosed two Economic payments of $250 (Aph.gov.au, 2021). This payment also includes pension payments and veteran payments. In addition, the Carers Allowance and Family Tax Benefits recipients will receive such payments if no support payments have been received at that time.
ii. Cashless debit card:
Thegovernment has announced that funds will be received by the CDC trials from 2021. Recipients of somesocial security payments in the Cashless debit card have 80% of the payment supplied to the account that can only be accessed through the Cashless debit card (Aph.gov.au, 2021).
iii. Access to Youth Allowance independence: The Australian budget has mentioned two measures to simplify the Youth Allowance and ABSTUDY. The regional students will be able to access the Youth Allowance independence by working 15 hours per week for two years or by earning 75% of the National Training Wage Schedule for 14 months (Aph.gov.au, 2021).
2. The potential range of changes to social security are discussed below-
i. Portability extensions: The Australian government introduced a permanent provision from 1st July 2021, that will make the pensioners apply for the pension protability. The portability extensions might be allowed for many reasons, such as illness, hospitalization, legal proceedings, and many more (Dss.gov.au, 2021).
ii. The pensioners and the individuals who receive Disability Support Pension are eligible to request an extension if they are not in the nation and are unable to return within 26 weeks.
3. Impact of such changes in Jill and Marcus’s retirement planning are stated below-
i. This will help in portability if they fall ill or are hospitalized. In addition, it will provide assistance in the payment of bills.
ii. If both of them are travelling abroads and cannot return within 26 weeks, they can ask for an extension that will not affect the pension rates after the 26 weeks. Therefore, Jill and Marcus will not be forced to worry about the changes in pension rates, and their pension amount will not be affected.
Section B
Answer5
(a) Authorization required and the reason behind the authorization of Winsome in its Australian financial Services license
The licensee of the financial service might give a person a notice in written form authorizing the individual to provide financial service(s) on behalf of the licensee (s 916A (1), Corporations Act). The financial services that the individual must provide must be specified in the license of the licensee. The licensee must be holding an AFSL taking all the services (s 911B, Corporations Act). An authorized individual who holds the financial services license might allowa personanotice in written authorizing that very person to provide services in relation to finances on behalf of thelicensee.
The reason behind authorization: For instance, company A, a stockbroking company, is trying to make a joint venture with Company B that is a financial planning organization. Now the question arises whether it is necessary for both the companies for applying for a new AFSL. Companies A and B may fall on the licenses that they possess. Company A holds the license for stockbroking. Therefore, the checking of authorization requires company A's AFSL and company B's AFSL to review the activities permitted to do under the rules and regulations of the license. If it is found that the scope of their license differs, then both the companies must ensure that the authorization they provide must have the required competencies to conduct that.
Also, authorization is a very important fact that it confirms the competencies of the entity seeking AFSL. Similarly, sub authorization will assist in the faster authorization of representatives who will work on behalf of the licensee. Thus, it ultimately will provide a mode of assurance.
(b) (i) Competencies and training Winsome will initially deal with superannuation funds of individuals with high net worth. Therefore, the firm should comply with the training requirements of Tier 1 for superannuation. In order to meet therequirements of the training for the superannuation products, Winsome must possess knowledge about all the superannuation products even if the firm deals with only the funds (RG 146.43).
The training and competencies to be demonstrated collectively to obtain AFSL are discussed below-
i. The company should have knowledge about the areas mentioned in appendix A. Appendix A allows the company to gather knowledge about two broader aspects that General knowledge and Specialist knowledge.
ii. The generic knowledge will be operated for understanding the context in which advice needs to be provided. On the other hand, the specialist knowledge will deal with knowledge on specific subcategories, and in this, it is Superannuation.
iii. The firm should show how it can use the knowledge to analyse and plan the technical problems and the issues of the client.
iv. The individuals who will be providing advice to the clients must be competent enough to apply the knowledge to the relevant issues. Also, apply proper judgment to the selection of instrumnets and services for the clients (RG 146.56).
v. The courses mentioned in Tier 1 are equivalent to the courses in the Diploma level in the Australian Qualification Framework (RG 146.58).
vi. The advisers are not compelled to take on the diploma course; however, the reference to the qualification will provide a comparative approach towards guiding the advisors to obtain the license (RG 146.59).
(b) (ii) Whether Winsome has the expertise to obtain AFSL and the additional information needed to make the decision
According to the RG 146.56 of the Regulatory Guide 146: Licensing: Training of financial product advisers, for personal or general advice individuals,financial service providers should possess knowledge about aspects in the generic section and specialist section. Therefore, for individuals to obtain the AFSL, they should comply with the training and competencies.If an individual has prior knowledge in commerce. Therefore, they may be likely having sufficient knowledge about the products. Even someone who has worked in a stockbroking company for 15 years. Therefore, that person should also have thorough knowledge about financial products. Moreover, the qualification required to undergo the training regimen is not known. Therefore, it is debatable whether Winsome has enough expertise and experience to obtain an AFSL.
Since knowledge on this specific aspect is not fully known, therefore, Winsome should check the guidelines of the training of ASIC. Winsome must find whether an individual requires to have specific qualifications or background of experience to be eligible to get enrolled in their prescribed courses.
(c) Requirements of Winsome to expand their market
Additional requirements for advising retail clients are discussed below-
i. The licensee should have a system of resolving disputes and arrangements for compensation.
ii. Disclosure requirements under Corporations Act, Pt 7.6: It mandates the disclosure and general advisory warning rules and regulations.
Additional requirements for giving personal advice-
If personal advice is given to the retail clients, then according to the disclosure requirements in Corporations Act, Pt7., there shall be a mandatory disclosure about the requirements.
i. According to Pre-FOFA: Corporation Act, Pt 7.7, the licensee should comply with the rule of suitability while advising.
ii. According to Post-FOFA: Corporation Act, Pt 7.7A, the best interest
iii. Requirements for thestandards in professional of a person licensed or authorised to provide advice with the retail clients:
Divisions 8A-8C, 9 and 10 of Pt 7.6: These divisions of Pt 7.6 authorise the FASEAestablished the standards of education, requirement of CPD, new entrants’ professional year requirements, Ethics and the arrangement for the codeschemes to identify and enforce the compliance by providers with theEthical codes. The entity is requiring ASIC to found a Register of the Relevant Providers and project newer terms such as ‘financial adviser’ and ‘financial planner’ (Legal.thomsonreuters.com.au, 2021).
(d) The three significant disclosures of obligation that Winsome needs to meet
The Corporation Act has enforced a limit on usage of words like 'independent', 'impartial', and 'unbiased' in relation with the financial service organization. The financial service business should be involved where the employer gets commissions, benefits based on volume, or extra benefits from the product providers that might target their advice or action (Corporations Act section 923A). According to the Final Report of the Royal Commission, it was disclosed that any adviser who is found to have breached section 923A if they use the above words is compelled to make necessary disclosures to the clients of the reasons behind the non-compliance with such provisions. The Australian government undertook the change, and due to its implementation in July 2020 by the Financial Sector Reform Bill 2020, a new section 942B was introduced.
According to section 942B (fa), if the authorized services are being provided by an entity that includes the rules and regulations advice theclients in retail personally, and the firm would corelate the subsection 923A (1) upon the assumption or by the usage of the restricted word about the provision of the personal advice. The three disclosures related to the advice are discussed below-
i. The entity should mention that the entity is not independent, unbiased, or impartial about rules and regulations of personal advice. The reasons behind the stated facts must be mentioned as well.
ii. In other words, they are restricted as per the regulations under the subparagraph 923A(5)(a)(ii) sets out that a firm is unable to make assumption or using the word about the rules and regulations of the personal advice then the entity should disclose with the specific reasons.
iii. The entity should meet other requirements determined in the instrument under subsection (7A) and subsection (7B). Under subsection (7A), ASIC may, by using the legislative instruments, mention the statements required for subparagraph (2) (fa)(iii). Furthermore, under subsection (7B), the instrument might include the requirements that a specific form of words is used for the statement.
(e) Two outcomes conforming to the ASIC
The two ASIC’s outcome might find against the company named Winsome if it is unable to comply with the disclosure are given below-
According to paragraph 4.520 of the Conduct and Disclosure in the Investment Advisory Process, ASIC has been vested with the power to take action against the entities if a breach is found to have taken place in terms of suitability and disclosure obligations. The actions to be undertaken by the administration includes the following
i. Suspension or cancellation of the AFSL (ss 915B and 915C) and prohibiting the person from providing financial services (s 920A).
ii. Directing an AFSL to provide a statement that might be audited on specific information about the firm’s operation, activities, or services provided by the licensee or its representative (s 912C).
References
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