FINANCIAL SERVICES REFORM ACT

Effective : 11 March 2002

(From CPA Australia)

FSRA: Not everyone caught say CPAs

The introduction of the Financial Services Reform Act on 11 March means greater consumer protection from shoddy financial operators, but not everyone has been caught by the legislation says CPA Australia.

Kathy Bowler, Manager Financial Planning, CPA Australia says the new legislation creates a single licensing system for all financial services' advisers. It is an important step forward in regaining some of the confidence lost by consumers in financial services.

'Under the new Financial Service Reform Act, it is the nature of advice being given, rather than who is providing it, that determines whether the law comes into play. This means that no matter who provides the advice, the consumer will be protected.

'However, the situation isn't as‑clear when you are dealing with ‑property', she says, 'Shoddy operators passing off property development scams as 'financial planning property investments' have not been caught in the new legislation and could mislead investors with potentially disastrous results and little redress.

'These operators offer huge rates of return on property investments and the best way consumers can protect themselves is to find who they really are dealing with, 'she says.

Ms Bowler warns that property investments are often attractive because the investment is tangible, but the amount required to invest in property means that there's often little room for diversification, a key component of good financial planning ‑ and something property agents are unlikely to bring to your attention. Property is also extremely inflexible even when you do make a sound investment choice. She said, 'it's not like you can sell off a bathroom to pay for an overseas holiday.'

'Some property investment operators really are to the detriment of qualified financial planners, especially when the industry has cleaned up its act and introduced a consistent licensing regime, 'she says.

Ms Bowler advises' investors to eliminate anyone passing themselves off as a financial planner who:

• has no licence or written authority to represent a licence holder;

• has no financial advisory services guide, or does not voluntarily provide you with a copy;

• has no professional indemnity insurance;

• attempted to sell you products during the first meeting; or

• made you feel pressured to sign up for any sort of investments and doesn't advise that there is a cooling off period.

The extent to which consumers were protected under the old legislative system varied because the existence and extent of any protection depended on who was giving the advice rather than what advice was being given. This created a number of unfortunate anomalies and again, contributed to consumer uncertainty and diminished consumer confidence.

The Act introduces a consistent licensing and disclosure regime and harmonises regulation for providers of financial services and product advice.

Consumers can expect to obtain similar advice from their CPA as they have always enjoyed in the past and during the FSRA legislation's two‑year transitional period.

Following the two‑year transition period, those seeking financial product advice will find that their accountant may only do so if they are licensed. Otherwise, they will be referred to a licensed CPA financial planner.

CPA Australia is one of the world's largest accounting bodies, representing 94 000 finance, accounting and business professionals in Australia, Asia and Europe.

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