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“ASIC takes seriously its consumer protection responsibilities, especially where long-term life savings and investor confidence are put at risk.”


To enhance the current protection around consumer credit, the new legislation reform is restructuring and reshaping the process for those who provide ‘credit’ and ‘credit services’.  The implementation of this legislation will also directly affect financial advisors, especially those who provide services pertaining to margin lending and the like.

Major Topics Under Legal Reform

The following are some of the significant topics addressed by the new consumer credit legislation:

  • Licensing of those who provide ‘credit’ and ‘credit services’;
  • External Dispute Resolution (“EDR”);
  • Enhancing responsible lending; and
  • Consumer claims to Hardship Variations.

For Financial Advisors: A Background

The most recent ASIC publication on surveying the quality of financial planning advice displays results that are significantly disappointing and equally baffling.  In addressing the survey’s primary focus on the standard of quality of advice provided by financial advisors, it dissected the aspect of suitability of the recommended investments in accordance with the client’s needs.

The end result demonstrated that approximately 79% of the recommended investments fell below what is considered to be good financial advice.  What’s even more alarming is that the overall quality was significantly worse if it involved “commission only” financial advice.

In 2005, ASIC had permanently banned a Queensland financial advisor from providing any financial services.  This result was consequential due to a finding that there was “reason to believe he would not comply with financial services laws in the future.”

The publication went on to note that ASIC will punish harshly in necessary cases (lifetime bans), in order to maintain a sense of integrity among consumers and the financial industry.

Implications of Legislative Reform on Financial Advisors

A direct consequence of legislative reform to consumer credit is that it affects responsible lending.  Financial advisors will need to be more wary of the coming legislation whilst threading with caution as advice is provided within the broad notion of consumer credit.

For example, margin lending which consist of a credit and an investment component may give rise to consequences for irresponsible consumer credit lending.  Thus, it invokes a greater sense of responsibility and whilst increasing liability.  Furthermore, there is an indication of a bipolar split in the interests between a financial advisor and consumer where ‘commission only’ financial advice is provided – giving rise to greater susceptibility to problems in respect of responsible lending.

The creation of obligations within the new legislation will make it onerous upon the financial advisor of ‘credit’ or ‘credit services’ to ensure responsible lending processes have been adopted.  Some of which may be:

  • Providing consumers with a credit guide; and
  • Assessing whether a loan is ‘not unsuitable’.

Failure in adopting and complying with new obligations under the new legislation may render the consumer to successfully make applications for substantial hardship – resulting in the possibility of increased costs to fix problems that could have easily been avoided.

Within the complex financial industry, there is a trend towards tighter and stricter regulatory frameworks.  In keeping with: new licensing processes, EDR schemes and broadening the scope of responsible lending - the end result is that successful substantial hardship claims will likely be more frequent should the financial advisor fail to meet the required obligations pursuant to the legislation.  As this becomes more and more apparent, financial advisors will be under ASIC’s watchful eye and in clear sight, ready to deter those who fail to comply with the new consumer credit legislative regime.

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 have any questions in relation to this article, please feel free to contact Berrigan Doube Lawyers.