Getting excited about the Corporations Act, one provision at a time! 961B(2)(e)

Section 961B(2)(e) sets out one of the requirements that an adviser must be able to prove in relation to personal financial product advice given to retail clients, in order to demonstrate that they have satisfied the "best interests" requirement.

The adviser must be able to prove (on the balance of probabilities):

if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:

(i) conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and

(ii) assessed the information gathered in the investigation;

In short, if you are recommending a financial product, you must be able to prove that you've made reasonable inquiries in relation to financial products (plural) before giving the advice. 

This should be a lot easier for ASIC to prosecute than section 945A, which was much broader and had a higher burden of proof (beyond reasonable doubt versus balance of probabilities).

There's a lot to be said about this provision. It will be interesting to see whether (and to what extent) ASIC enforces it.

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Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.