A leading lawyer has warned trustees, particularly those of corporate funds, to be cautious that the information their funds provide is not deemed advice, if they want to comply with the Financial Services Reform (FSR) legislation and avoid obtaining a licence.
Michael Vrisakis, partner of law firm Blake Dawson Waldron, was responding to the six policy statements and a guidance paper recently issued by the Australian Securities and Investments Commission (ASIC), which, he says, draw a ‘very fine line’ between what is information and advice. The FSR legislation comes into effect on March 11, next year.
But he warns: “Corporate funds are exempted from licensing in relation to dealing, which will mainly be relevant to issuing interests in the fund. However, they will need to be licensed if they are providing advice.”
He notes that while providing mere factual information itself cannot be regarded as providing advice, certain day-to-day activities of trustees can stray into the area of giving advice. “So, while trustees will not need to be licensed when providing members with application forms to join the fund, if the employer or trustee is actively or impliedly advising the person to join the fund, this activity will be considered advice,” he says.
Vrisakis says potential problems could emerge in situations where statements start amounting to a recommendation or opinion. Examples could include material issued by the trustee or employer about the fund that makes statements which promote aspects of the fund, or when the trustee offers a choice between a defined benefit or accumulation arrangement.
The other significant issue, which will need to be closely monitored, concerns disclosure about contribution transactions and social responsible investment.
“While disclosure will also be required by providers of investment products of the extent to which trustees have taken into account social, ethical, labour and environmental considerations, the trustees’ ability to make ethical investments is governed by their obligation to act in members’ interests and select the best investments available,” says Vrisakis.
He adds that disclosure will also be required if the trustee didn’t take these factors into account.
