What recommendations should be made to a retail client and how should they be made?

Date: Sep 14, 2014
Document Type: Article

There are two types of clients which participate in managed investment schemes; wholesale and retail clients. In a general sense, wholesale clients are more likely to be experienced and well-resourced investors, whereas retail investors likely have limited knowledge of the financial markets and limited funds. For more information on the distinction between retail and wholesale clients, please refer to our earlier articles. In recognition of the potential vulnerability of retail clients, there a number of safeguards and disclosure requirements to ensure that they are as well-informed as possible. 

The licensed operator of a managed investment scheme must, when dealing with retail clients, satisfy a general disclosure standard, by providing information that might reasonably be expected to have a material influence on a reasonable person to invest. ASIC also provides Regulatory Guides which set out minimum disclosure requirements for specific types of managed investment schemes such as mortgage schemes or unlisted property schemes.

In the provision of all financial products, the licensed operator will be required at a minimum to provide the following documents to a retail client:

  • a financial services guide;
  • a product disclosure statement; and
  • a statement of advice.
Financial Services Guide (FSG)

The Financial Services Guide will provide information about the entity giving the financial advice. It should disclose any fees, how complaints are dealt with by the entity and explain the nature of the financial services offered.

This guide must be given to the retail client as soon as practicable after it becomes apparent that the financial service will or is likely to be provided. In any case, it must at least be provided to the client before the financial service is provided. The guide must be up to date when given to the client and any subsequent changes should be provided in a Supplementary Financial Services Guide.

Product Disclosure Statement (PDS)

A Product Disclosure statement must be provided by a financial services provider when they offer a financial product. It will include information about the features of the scheme, fees, commissions, benefits, risks and how complaints are handled.

Statement of Advice

A Statement of Advice will be given to a retail client after they have been provided with personal financial advice. It must set out the basis on which the advice is given, details of the providing entity, information on any payments or benefits the adviser or licensee will receive, any other interests or relationships between the entity and other providing entities and any warnings which may be required by law.

As well as these main documents, retail clients must also be provided with a general advice warning[2] (if only general advice is given), ongoing disclosure of material changes and significant events effecting the fund, a periodic statement showing transactions and changes to investment balances and confirmation of transactions.

What if these recommendations are not made?

If financial services entities fail to comply with these disclosure requirements, ASIC can take enforcement action. This may involve ASIC forcing the provider to stop issuing the product. If these actions are not complied with, the providing entity can face civil penalties.

Entities may also become liable where a person suffers loss or damage due to not being provided with a necessary disclosure document or statement, or where they were defective. The Court can also declare contracts made relating to financial products services void or otherwise make such orders as it deems desirable in order to do justice between the parties.

Craddock Murray Neumann Lawyers Pty Ltd are experienced practitioners in the field of corporate law. For more information about our services, please contact us at craddock@craddock.com.au or call us on (02) 8268 4000.

Applying for Business Loans
Date: Sep 02, 2010
Australian Consumer Law
Date: Apr 01, 2011
Being Sued
Date: Nov 02, 2010
Closing your Company
Date: Feb 02, 2010
Consideration in contract law
Date: Jun 10, 2015
Contract: the rules of the game
Date: Jun 15, 2015
Goods Shipping and the Law
Date: Oct 01, 2012
Insurance Basics
Date: Feb 03, 2011
Is your business True Blue?
Date: Sep 02, 2009
PPSA Protection and Perfection
Date: May 25, 2015
Security for Costs
Date: Aug 08, 2010
Social Media and your Employees
Date: Apr 03, 2010
Social Networking in Business
Date: Jul 05, 2011
Tax Time Record Keeping
Date: Aug 03, 2010
Trusts and family law disputes
Date: Jul 06, 2015
What is a guarantee?
Date: Nov 10, 2014
What is consideration?
Date: Sep 14, 2014
When should a warning be given?
Date: Sep 14, 2014
Why Choose Bankruptcy?
Date: Dec 14, 2007
Working with Contracts
Date: Mar 02, 2011
Back to Publication List