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Home Forums Australian Financial Services Licensing (AFSL) Forum Application of 947D to Bank Accounts

This topic contains 1 reply, has 2 voices, and was last updated by  Chris Wallace 7 years, 4 months ago.

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  • #3585 Reply

    Hi

    ASIC’s recent RG175 update mentions for the first time that the product replacement requirements found in 947D apply to replacing an existing interest in a bank account (see page 82). This approach is also reflected in ASIC’s update of RG90 (see page 35).

    If this requirement is taken literally, then its application to a range of recommendations is potentially limitless. For instance, a recommendation to contribute to super using cash, a withdrawal from super to cash to pay for a holiday, reinvesting investment returns within a WRAP via a cash hub, starting a saving plan through a master trust using funds sitting in cash.

    Is it possible that 947D does not apply when using cash for a recommendation if no specific bank account (product) is recommended (eg withdraw $50k from XYZ super to invest in cash), given the words used in 947D relate to specific products (XYZ product for ABC product) but not a class of product (deposit accounts)?

    Alternatively, it is possible to frame some recommendation by not refering to the source or placement product. For instance rather than invest $40k from your bank account into XYZ Fund, say invest $40k into XYZ Fund (even though the advice know that these funds are sitting in client ABC bank account). A simialr approach could be used for a product withdrawl, even though the intention would be to allocate to client cash account.

    Thanks for reading

    James

    #3586 Reply

    Hi James,

    It appears that your assumptions are technically correct, s947D of the Corporations Act deals with specific products, not class of products, meaning that it does not apply when using cash for a recommendation if no specific source is identified.

    However it is important to keep in mind that an advice provider is subject to best interest obligations in relation to the advice. This involves, among other responsibilities, the provider acting in the best interests of the client and only providing advice that is appropriate to the client.

    It appears that if you were to proceed with the above situation, using cash for a recommendation when no specific source is identified may in fact breach the best interests obligation.

    Please contact our office if you require more information.

    Author: David Court

    Co-contributor: Clare McAdam

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