For this reason, according to Imac legal & compliance principal Ian McDermott, Chapter 7 of the Corporations Act – which sets out the main provisions that cover financial services – should be scrapped and reworked
“There is no escaping the fact that the financial services laws were drafted ostensibly with financial products in mind,” Mr McDermott said.
“We all know that the current financial services regime has developed from the previous life insurance and fledgling investment product industry.
“This has resulted in the law having a product focus instead of a strategic advice focus. Even advice, under the Act, is called ‘financial product advice’.
While Mr McDermott acknowledges the FOFA legislation tried to “remedy” some of this by introducing the term ‘financial advice’, he adds that because it is not defined in the Act, this has “actually resulted in greater legal uncertainty”.
“In my view, if the Act were to introduce a new definition of ‘financial advice’ as opposed to ‘financial product advice’ this would help break the nexus between advice and product and be another useful step in making this vital industry the respected profession we all want it to be,” he said.
“But this would be difficult for regulators as such a definition could capture advice by real estate agents, accountants, lawyers and others. So, the definition would need to be properly scoped.”
Mr McDermott added that the laws that financial advisers need to adhere to should be clearer and more concise.
“[There have been] numerous regulatory changes since the Financial Services Reform Act was introduced and Chapter 7 starts to read like a maze of unclear requirements to many licensees,” he said.
It would be entirely appropriate for Real Estate Agents to be governed by such definitions as they can say what they like in regard to including investment properties within SMSF’s and advertisements quoting “Fantastic Investment Opportunity” etc etc. with no qualifications specific to investment advice and no SOA or ROA to justify any of this “advice” provided.
It would be staggering to learn how much commission has been paid to unqualified agents in the last 2 years in Sydney who have sold overpriced properties on the basis of verbal or advertised advice regarding investment potential.
I have recently seen an advertisement for a property developer advertising that the townhouses were “suitable for all Self Managed Super Funds” !!!
If Real Estate Agents are to be selling a property on the basis of investment either residential or commercial then they too should be subject to research, compliance and be held accountable.
It is simply wrong that they can give advice regarding a $2mill property investment and not be held accountable.
If we give someone financial advice on a $2mill investment into a portfolio of Managed Funds, we all know the complex process we are subjected to.
The Real Estate industry need a giant sized shake-up and to be brought into line and be licensed to provide any form of investment advice.
I agree and have stated for some time the Act needs a rewrite.
I agree totally.
However, if there were to be clear laws, then the industry would not be “in fear” and thus ASIC would have less power. Not likely to happen. Cynical? maybe.
Mr McDermott is absolutely on the money. There are many, many times where I’ve had to decline to answer a question of someone because it is financial product or service advice.
FOFA, LIAWG and other attempts to move the industry forward are blunted by the fundamental design of the legislation that binds us all.