It is therefore important to shed some light into the nature of authorized and sub-authorized representatives, given their increasingly significant role in the provision of financial services. In a nutshell, the findings point to one generic conclusion: The courts have systematically interpreted and narrowed the wider scope of legal responsibilities whilst at the same time, the regulatory framework is set towards achieving a self-regulatory, competency-based compliance approach.
We begin by exploring who authorized and sub-authorized representatives are, followed by a discussion on their general and specific obligations to various stakeholders. Here, we examine various significant factors of the nature of authorization and sub-authorization, and the legal and practical aspects of the arrangements with reference to case laws and regulatory frameworks.
In particular, we look at the statutory obligations of the arrangements and other such duties stemming from common law due to the contractual nature of the relationship between licensees, authorizers, providers and clients. With the exception of licensees and authorizers, when we refer to "providers", we mean authorized and sub-authorized agents, but does not include customer service representatives, para-planners and trainee advisers. The later three entities are referred to as "third party representatives".
Moreover, we examine the relationship of authorized and sub-authorized representatives in their capacity as providers, and the obligations of licensees or authorizers in the event of a fiduciary relationship arising from such a client-provider relationship. Finally an outline of the regulatory framework governing representatives is presented, followed by a statement of the summary of the entire findings.
Authorized & Sub-Authorized Representatives
The Corporations Act 2001 (Cth) (“the Act”) states that an "... authorized representative' of a financial services licensee means a person authorized in accordance with section 916A or 916B to provide a financial service or financial services on behalf of the licensee.' The Act refers to an Australian Financial Services (“AFS”) license holder as a "market licensee." Entities capable of being authorized representatives are "individuals, bodies corporate, partnerships3 and individuals that act as trustees of a trust.
A trust itself cannot be an authorized representative". Authorized representatives can be appointed by a licensee to carry on business on behalf of the licensee. An authorized representative who is a body corporate can in turn appoint sub-authorized representatives to act on the authorizer's behalf. The Act specifically states that only a body corporate that is an authorized representative can be an "authorizer" - entity capable of appointing sub-authorized representatives.
The definition of "representative" of an AFS licensee or an authorizer takes on a broader meaning when such a representative is taken as an agent at law or purports to act in a representative capacity. The insertion of this broad coverage of would-be representatives triggers both statutory and common law interests where contractual issues come to surface.
A licensee cannot be an authorized representative of another licensee10 but an authorized representative can be an authorized representative of two or more licensees.11 AFS licensees who are insurers can grant other licensees who act under binders given by the insurers.
In the case of an authorized representative being such a representative for more than one licensee, there exists a possible conflict of interest situation. Where a licensee or authorizer provides an attractive package in terms of commission and other benefits to the provider,13 the provider is likely to promote to the client the products of the licensee that offers him/her the highest remuneration package.
Although a provider is charged to derive a reasonable basis for the advice, it is the provider's prerogative to derive such a reasonable basis and the law is silent on the maximum value of commission or promotional inducements that can be offered to a provider. Possible breaches of fiduciary duties under common law, given the broad definition of "representatives" in such cases have been highlighted on several occasions. Company executives who take on an active role in providing financial advice to clients are obliged under the financial services provisions covering them in their capacity as providers or authorizers as well as in their capacity as directors.
It is also worth mentioning the roles of third party representatives as the legal implications surrounding their position in the provision of financial services hierarchy places them at a crucial juncture. The Act recognizes them as providers but limited to "... basic deposit product or a facility for making non-cash payments that is related to a basic deposit product". ASIC sets out general rules of conduct for this class of persons under Policy Statement (“PS”) 146.
ASIC however states that only licensees and authorized representatives are "providing entities" and that any provision of financial services by third party representatives are merely a representation of the principal who can either be the licensee or the authorized representative. The Act further states the conditions under which one can be a representative of the principal in the capacity as an authorized or sub-authorized representative or as a third party representative.
