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REGISTRATION AND LICENSING FOR FINANCIAL ADVISORS

Overview

The implementation of the new consumer credit protection regime requires that those who provide ‘credit’ and ‘credit services’ register in order to become licensed.

If you are currently engaged in credit activities under State or Territory credit laws, ASIC requires you to be registered by 30 June 2010 in order to continue engaging in credit related activities. Registration will allow you and your representatives to engage in credit activities until you are granted a licence.

Provision for Credit Assistance

Under the new credit legislation, financial advisors will fall categorically under ‘Providers of Credit Services’.  Providing a credit service is a form of credit activity.  You will be deemed to provide a credit service if you:

a. give credit assistance to a consumer; or

b. act as an intermediary between a lender and a consumer (in relation to a credit contract).

The concept of ‘credit assistance’ is pivotal towards licensing for financial advisors.  Since financial advisors may mostly engage in the act of recommendation and suggest various financial products to consumers, it is likely that the advisor may fall within the confines of the new legislative reform.

Financial advisors will be considered to be giving credit assistance to a consumer if they:

(a) suggest that the consumer:

(i) apply for a particular credit contract with a particular lender, or apply for a particular consumer lease with a particular lessor;

(ii) apply for an increase to their credit limit on a particular credit contract; or

(iii) remain in their current credit contract or consumer lease; or

(b) assist the consumer to:

(iv) apply for a particular credit contract with a particular lender or apply for a particular consumer lease with a particular lessor; or

(v) apply for an increase to their credit limit on a particular credit contract.

The meaning of the word ‘suggest’ is not defined under the new legislation but in may involve and extend to introducing to the mind of a consumer that they:

(a) apply for;

(b) apply for an increase in; or

(c) remain in,

a particular credit contract with a particular credit provider.

Applicability to Financial Advisors

Generally, financial advisers will engage in credit assistance related activities by providing for budgeting and debt management advice.  Consequently, it may involve considering particular credit products or providers and therefore fall within the confines of the regulations under the new consumer credit regime.

Not all advice provided by financial advisers will be deemed to be of credit assistance even though particular suggestions are made to the consumer.

Conclusion

In addressing the legislative reform under the consumer protection laws, financial advisors may be required to be licensed as there is a likelihood that financial advisors will engage in credit related activities.

The National Credit Act looks to be taking a broad view in regulating various credit related activities, specifically those of credit and credit services.  The activities engaged in by financial advisors may very fall within the provisions of credit assistance, which in turn, will then fall within the context of credit services.

Please be advised that this article is not intended to be legal advice. All advice Berrigan Doube Lawyers provides is tailored to our client’s needs and therefore our advice is on a case-by-case basis after having consideration of our client’s circumstances.

Should you believe you may be engaging in credit assistance services and require more information about the new consumer credit protection regime, please contact us on 9251 6699.