Jack’s and Jill’s action and basis in case law and legislation

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Table of content

 

  1.      Jack’s and Jill’s action and basis in case law and legislation…………………………….. 2

1.1      Corporations Act……………………………………………………………………………… 2

1.2      Policy Statement 146 and Financial Services Reform Act 2001 (FSR Act) 2

1.3      Fair Trading Act 1987……………………………………………………………………….. 3

  1. Other actions might be taken………………………………………………………………………. 4

2.1      Request for the demonstration of the training efforts……………………………. 4

2.2      Request for the demonstration of the remuneration structure…………………. 5

  1. Conclusion……………………………………………………………………………………………….. 5

Reference list………………………………………………………………………………………………….. 6

1.        Jack’s and Jill’s action and basis in case law and legislation

 

The term ‘Financial Planning‘ refers to the process of determining the objectives, policies, procedures and programmes for effective management of the financial activities of an enterprise. Financial planning business has its own procedures as required by the relevant laws and regulations (Maheshwari 2004, p. 224). In this case Jack and Jill took the advice from Tom who is a financial advisor in Opus Megatron, a financial planning business in Brisbane to invest $200,000 in Ostrich farming, but the financial investment turned out to be a failure and they loss the money. Jack and Jill decided to sue the company of Opus Megatron because the financial advisor was found out to have had no formal training as a financial advisor. Their legal actions have the basis and support from different relevant laws and regulations.

 

1.1    Corporations Act

 

According to the Corporations Act Section 791A, any person operating in the financial market within the jurisdiction must have an Australian market license that authorizes the person to operate the market in this jurisdiction if it is not exempt from this part (austlii.edu.au 2011). Therefore according to the relevant clauses in the Corporation Act and regulations, in order for any company in Australia to operate the financial planning business, there are licenses to be obtained for both the company that provides the financial advisory service and also the representatives who are in charge of the provision of the final advises to influence the clients’ buying decision making in the financial market. Assume that Opus Megatron is a license holder under the Australian Financial Services Licence (AFSL), in the following we will check the training requirements which should be obtained by the representatives or advisors under a license holder according to the Policy Statement 146.

 

1.2    Policy Statement 146 and Financial Services Reform Act 2001 (FSR Act)

 

The Policy Statement 146 was introduced in accordance with the Financial Services Reform Act 2001 (FSR Act) to protect the investors especially those individual investors who do no posses the necessary financial knowledge by prescribing sufficient level of training, competence and experience to be owned by those who provide ultimate financial advisory services to the investors. Therefore, the Policy Statement 146 made according to the Financial Services Reform Act 2001 (FSR Act) has actually provided detailed guidance for the financial planning companies which are Australian Financial Services License (AFSL) holders to follow to train their advisors in a good and adequate way to serve the clients. For example as clearly stated in Regulatory Guide 146 (RG146) 62 that Advisers will in general meet the training standards by satisfactorily finishing the approved training courses related to their activities. And approved training courses are those that are evaluated by an authorized assessor and listed on the ASIC Training Register (asic.gov.au 2010). But as we can learn from the case, the Australian Financial Services License (AFSL) holder Opus Megatron as company operating in the financial planning business in Brisbane did not provide any training to Tom as a financial advisor. And hence, the Opus Megatron did not operate in accordance with the relevant clauses and regulations as stated in the Policy Statement 146 and Financial Services Reform Act 2001 (FSR Act) regarding the requirement of sufficient training and knowledge of the financial advisors in guiding the clients in their financial investment decision making.

 

1.3    Fair Trading Act 1987

 

As explained in the Fair Trading Act 1987 section 10, any party should not in trade or commerce engage in conduct and behavior which is misleading or deceptive or would likely to mislead or deceive (austlii.edu.au 2011). As mentioned in the case study, the financial service provider Opus Megatron operates in the financial planning business in Australia, because it is normal case the people under this circumstance including Jack and Jill would assume that the Opus Megatron operated in accordance with the relevant laws and regulations which include this Fair Trading Act 1987, it was Opus Megatron’s fault to mislead Jack and Jill to believe that the company had qualified financial advisory service which turned out be to wrong. Such misleading behaviors are in contradiction with the relevant clauses in the Fair Trading Act 1987.

 

2.        Other actions might be taken

 

In response to the 2009 Global Financial Crisis in which a number of large financial service providers had been witnessed as providing advisory service that was not fitting into the best interest of the clients, therefore, the Australia government released the so called “Future of Financial Advise (FoFA)” as a reforming package in April 2010 and the new package is to be effective on 1st July 2012 (Grable 2010, p. 33). The new package introduces a number of changes to be implemented to reform the future financial advice industry. With reference to these changes we can make some recommendations to Jack and Jill.

 

2.1    Request for the demonstration of the training efforts

 

One of the key efforts in the Future of Financial Advise (FoFA) reforming package is the introduction of the new training requirement which states the necessary education conditions to be met. And as in the case, Jack and Jill could require the company to provide the evidences to demonstrate the training efforts the company had invested on the involved advisor Tom in order to provide professional recommendations in the financial investment decision making of the clients. Such request is in adherence with the old and also new regulations in the financial planning industry.

 

 

 

2.2    Request for the demonstration of the remuneration structure

 

Another important change in the Future of Financial Advise (FoFA) reforming package compared to the current practices is the possible ban on the conflicted remuneration structure that is inclusive of the commissions and also the percentage based charge could only be imposed over the ungeared financial products. Hinted by this reforming direction, in this case, Jack and Jill could require the company to provide the evidences to demonstrate that there are no conflicts of interest caused by the design of the advisors’ remuneration structure. This request is based on the rationality that Tom’s advice to invest in the Ostrich farming in Cairns could possibly be linked to Tom’s receiving commission from the interest conflicting parties such as the company of Ostrich farming.

 

3.        Conclusion

 

Based on the above analysis, it is safe to come to two major conclusions. First of all, as for Opus Megatron, a financial planning business in Brisbane, its deployment of Tom to be in charge of Jack’s and Jill’s request for financial investment advisory service is in contradiction of the relevant laws and regulations by not providing necessary training for Tom as a financial advisor; secondly, besides suing the company Jack and Jill could also request the company to provide evidence to prove that the company has provide sufficient training for Tom and how Tom’s remuneration is structured.

Reference list

 

asic.gov.au 2010. REGULATORY GUIDE 146 Licensing: Training of financial product advisers. Accessed on 23 May 2012 [online] http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/rg146.pdf/$file/rg146.pdf

 

austlii.edu.au 2011. CORPORATIONS ACT 2001 – SECT 791A: Need for a licence. Accessed on 23 May 2012 [online] http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s791a.html

 

Grable, J. E. 2010, Financial Planning and Counseling Scales. Germany: Springer. p. 33

 

Maheshwari, R. P. 2004, Principles of Business Studies. New Delhi: Piyush Printers Publishers Pvt, Ltd. p. 224