Australia: Swimming between the flags: are financial advisers the new product lifeguards?

Clayton Utz Insights

Key Points:

Financial advisers should continue to follow best practice and ensure they comply with their obligations regarding the provision of advice and distribution generally.

The financial services industry has been the subject of significant regulatory reform over the last 15 years, starting with the introduction of the Financial Services Reform Act in 2001 and most recently, the Future of Financial Advice reforms.

Many attempts have been made to strike an appropriate balance between promoting a free and open financial services market and providing necessary consumer protections.

In the latest attempt to restrike this balance, the Financial System Inquiry (FSI) report, released in December 2014, makes a number of recommendations.

Of these, two have proven to be particularly controversial:

  • the proposal to introduce a principles-based product design and distribution obligation (see recommendation 21) to ensure that products are designed and distributed having regard to target markets ie. requiring product designers to make it clear who should be swimming between the red and yellow safety flags; and
  • the recommendation that ASIC be given product intervention power (see recommendation 22) or in other words, the power to ensure that investors are only ever able to swim in safe waters.

Product design: the red and yellow flags

Recommendation 21 of the FSI report recommends that product issuers and distributors be required to consider a range of factors when designing products and distribution strategies.

These factors include the target consumer and the distribution channel best suited to distributing the product.

The intent behind the recommendation is that consumers only buy products that are appropriately matched to their needs. The subtext is that without strict controls, investors cannot be trusted to read and understand disclosure documents (or that disclosure documents do not include appropriate or sufficient information).

The other implication is that distribution channels themselves have not, to date, appropriately controlled the distribution of certain types of products.

Product intervention power: the shark siren

Recommendation 22 of the FSI report proposes that ASIC be granted a "proactive product intervention power".

The power is intended to assist ASIC in preventing losses to investors where there is a "risk of significant consumer detriment" by giving it power to require or impose amendments to disclosure materials, require warnings to consumers and appropriate labelling, and to ban or restrict the distribution of products.

FSI chair David Murray stated that the power was only to be used in "the most obvious and extreme circumstances". It has been modelled on the equivalent power invested in the UK's Financial Conduct Authority (FCA). The FCA has a large degree of flexibility in how it exercises the power, and can make rules as "appear necessary or expedient for the purpose of advancing one or more of its operational objectives".

The proposed "intervention power" comes with some built-in safeguards. It would only allow ASIC to intervene temporarily, with any intervention action lasting 12 months, after which it could be extended by the government in limited circumstances.

Further, ASIC will be required to consult with APRA before using the power in circumstances where the intervention action may affect an APRA-regulated body.

Presumably, this is intended to avoid any legal conflict or regulatory double-dipping.

A myriad of concerns have been expressed about the proposed 'intervention power'. Some have suggested that ASIC would be overly zealous in using the power, negatively impacting industry confidence. Others have expressed concern that consumers will view a lack of intervention by ASIC as implying that the product is low or risk free.

Many product issuers have also expressed concern that once a product is subject to an intervention order it will be "blacklisted" by customers.

Advisers: the lifeguards?

So what role will advisers play given there is scant reference to "advisers" in each of the recommendations?

Perhaps ASIC would be less likely to use its intervention power if the product issuer could demonstrate that an appropriate distribution strategy (inclusive of an adviser education campaign) was in place.

Maybe a product issuer could shift the burden of ensuring a product is appropriate and "true to label" by requiring an adviser to always act in a manner that is consistent with the agreed distribution strategy for that product.

In this regard, will advisers be required to not only ensure they meet their existing statutory obligations regarding the delivery of personal advice but also show it was given in a manner consistent with a product issuer's distribution strategy design? And will these two competing obligations always be reconcilable?

Many commentators and industry experts warn that a new "intervention power" will be the last straw for advisers, who are already labouring under the burden of regulation. They question whether the power will require advisers to take the extra step of considering not only whether a particular product is in the best interests of the customer but also whether it is actually appropriate for a particular class of client.

This raises the further question of how an adviser's statutory and general law obligations to act in the best interests of consumers will sit in a world where products have labels and may be pulled from distribution by the regulator at any time.

While these concerns are understandable, it seems unlikely that the FSI intends the intervention power to be any more than another be any more than another form of safeguard to give ASIC the ability to step in where parliament is slow to enact any necessary regulatory reforms.

In any case, it's important to remember that ASIC already has broad and far-reaching powers of intervention.

For example, it has the power to implement stop orders on certain disclosure documents that it believes are misleading or deceptive, non-compliant or that are not "clear concise and effective".

It remains to be seen how the new product appropriateness rules and ASIC's product intervention power would play out practically if implemented and, in particular, what role advisers will play.

In the meantime, advisers should continue to follow best practice and ensure they comply with their obligations regarding the provision of advice and distribution generally.

You might also be interested in...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.