It is an offence for a licensee to knowingly furnish a defective PDS to an authorized representative. It is the licensee's duty to ensure that a "providing entity" (includes authorized or sub-authorized representatives) who provide personal advice to clients, must comply with s 945A(1) which states the conditions under which such advice can be provided.
The Act states that the licensee is responsible for any "loss or damage" suffered by the client due to acting on advice provided by the licensee's authorized or sub-authorized representative. This creates a statutory obligation on the part of the licensee to make sure its authorized and sub-authorized representatives meet the minimum compliance and competency requirements. In any case, the arrangement between the licensee and authorized representative can be referred to as a standard principal and agent arrangement whereby the sub-authorized agent acts as a third party to the original contract.
A sub-authorized representative's actions are borne by the licensee which wouldn't, generally otherwise be the case in common law as the sub-contract would be between the authorizer and the sub-authorized representative. However, because of the statutory obligations of the licensee, the client is able to claim damages from anyone including authorized representatives and the licensee.
These claims can be restricted only to authorized representatives. Other licensees of whom the authorized representative acts as well, that could otherwise be held liable, can be excluded as well if an agreement was phrased in consideration of s 917F (6(b)) which effectively indemnifies them from any liability.
Authorized representative's obligations:
Obligations to clients
An authorized representative of one licensee or two or more licensees is obliged "…to give a Financial Services Guide if financial service provided to person as a retail client". Section 942C sets out what must actually be in a Financial Services Guide (“FSG”) provided by the authorized preventative. Licensees themselves are also required to furnish the same. An FSG must be provided if the client is likely to engage the "providing entity" (in this case the authorized representative), in the actual provision of financial services.
In the event that an FSG cannot be provided immediately, the provider must issue a statement stating the main components of the guide and other information specific to the client. The actual FSG must be provided within 5 days of the date of issue of the statement or earlier.
In providing financial advice, authorized and sub-authorized representatives must adhere to s945A(1) to derive a reasonable basis for the advice. The ASIC Act 2001 (Cth) (“ASIC Act”) states that there exists an "implied warranty" in any contractual nature which involves the supply and procuring of financial services between the provider and the client. As unsatisfied clients are likely to sue the providers, s 945A(2) acts as a defense provided the authorized representative meets all three requirements: Licensee provided the provider with adequate information or instructions; the provider failed due to reliance on s945A(1) and that the advice provided was appropriate according to the client's situation and was conclusive of investigations undertaken by the provider.
Furthermore, the provider must warn the client if the advice given was based on incomplete or inaccurate information. The provider is also obliged to issue a statement of advice (“SoA”) to the client. Section 947C sets out the main requirements for and when the provider is an authorized representative. When an authorized representative recommends the client an alternative financial product, the provider is obliged to provide all relevant information that could possibly arise from that transaction.
In complying with laws, regulations and directions issued by statutory bodies, authorized and sub-authorized representatives must have adequate training exposure to meet the ASIC minimum compliance and competency requirements. In the case of third party representatives, it is the duty of licensees, authorizers and providers to make sure any such persons under their authority to have them adequately trained to provide the right type of financial service to clients. Furthermore, the issue of fiduciary duties under statute and common law arising from the provision of financial services to retail clients posses an important situation where the provider is other than the licensee itself.
Fiduciary Issues With Providers
All providers have some kind of fiduciary relationship with clients. Generally, fiduciary matters arise from either a conflict of interest situation or "acting in the best interest of the beneficiary."
The scope of fiduciary relationships so far been has been narrowed in various instances. In Daly v Sydney Stock Exchange Ltd the essence of a fiduciary relationship as argued by the appellant was constructive trust, however, it was not enough to construe a fiduciary relationship for reasons that;
"... A constructive trust was on the one hand unnecessary to protect the legitimate rights of the lender and on the other hand could lead to consequences unjust both to the creditors of the borrower and the borrower itself...".
