What can limited AFS licensees do?

This is Information Sheet 227 (INFO 227). It explains all the activities that limited Australian financial services (AFS) licensees can be authorised to carry out.

Some limited AFS licensees may only be authorised to carry out a subset of activities. The scope of your limited AFS licence is made up of the financial services, financial products and the type of client covered by your limited AFS licence.

• Financial services you can be authorised to provide
• Types of client you can be authorised to provide services to
• Providing financial product advice
• Arranging for another person to deal in an interest in a self-managed superannuation fund (SMSF)

Financial services you can be authorised to provide

Your limited AFS licence will set out the range of financial services you are authorised to provide for specific types of financial products and clients. The services and products that your limited AFS licence may cover are set out in Table 1 below.

Table 1: Range of services and products

Services	Products
Provide financial product advice that is either personal or general in nature, about specific products	Interests in an SMSF Superannuation products, in relation to a client’s existing holding, to the extent required for: making a recommendation to establish an SMSF providing advice about contributions or pensions under a superannuation product
Provide class of product advice that is either personal or general in nature (i.e. financial product advice about classes of financial products only)	Superannuation products, securities, general insurance, life risk insurance and basic deposit products (as defined in the Corporations Act 2001 (Corporations Act)) Simple managed investment schemes (as defined in regulation 1.0.02 of the Corporations Regulations 2001)
Arrange for another person to deal in a financial product, including applying for, acquiring, varying, issuing or disposing of financial products on behalf of another	Interests in an SMSF

While the law exempts certain activities from the AFS licensing regime so that those carrying out the activities do not need to be covered by an AFS licence, some of these exemptions may not apply if the person seeking to rely on them is covered by an AFS licence. For more information, see Information Sheet 216 AFS licensing requirements for accountants who provide SMSF services under the heading ‘How the exemptions will apply if you are covered by an AFS licence’.

Types of client you can be authorised to provide services to

Your limited AFS licence will also set out whether you are authorised to provide services to retail and/or wholesale clients. If you are only authorised to provide services to wholesale clients, it is your responsibility to ensure that you do not provide services to retail clients.

It is also important to know whether your client is a retail or wholesale client because many of the obligations associated with providing financial services (such as the obligations to provide a Financial Services Guide or a Statement of Advice) only apply when your client is a retail client.

Determining whether your client is a retail client

In most instances, a person is a retail client by default unless they meet a specific test that means they can be treated as a wholesale client.

Where financial services relate to superannuation

Where you provide financial services that relate to superannuation, your client will be a retail client unless they are the trustee of an SMSF with net assets of at least $10 million: see section 761G(6)(c).

Your service might relate to a superannuation product if, for example:

• you provide advice about whether to establish an SMSF and about your client’s existing superannuation product
• you provide advice about the structure of the SMSF, or
• you arrange a dealing in an interest in an SMSF.

Where financial services relate to general insurance

Where you provide financial services that relate to certain kinds of general insurance products (such as motor vehicle, home or consumer credit insurance), your client will always be a retail client if:

• they are a natural person, or
• the general insurance product is, or would be used in connection with, a small business (see section 761G(5)).

Otherwise, your client will be a wholesale client when you provide financial services that relate to those kinds of general insurance products.

Where financial services do not relate to superannuation or general insurance

When the financial services you provide do not relate to superannuation or general insurance (e.g. if you give class of product advice to your SMSF trustee client about how the assets of the SMSF should be invested), your client will generally be a retail client unless they fall into one of the following three categories of wholesale client:

• a qualified accountant has certified that the client has earned at least $250,000 a year for the last two years or has net assets of at least $2.5 million (see section 761G(7)(c) and regulations 7.1.28, 7.6.02AB and 7.6.02AC)
• the client meets the definition of a ‘professional investor’ – for example, by holding an AFS licence or controlling at least $10 million (see section 9), or
• you are satisfied on reasonable grounds that the client has appropriate prior experience to be treated as a ‘sophisticated investor’ and they have signed the appropriate acknowledgement (see section 761GA).

(Another ‘wholesale client’ test in the Corporations Act relates to the value of your client’s investment in the product. However, because you cannot provide services that relate to a specific product (other than services that relate to superannuation in which case this test does not apply), this test will not be relevant for you as a limited AFS licensee.)

Table 4 in Regulatory Guide 175 Licensing: Financial product advisers—Conduct and disclosure (RG 175) summarises some of the different contexts in which you must treat your client as a retail client.

Providing financial product advice

You provide financial product advice to your client if you give them a recommendation or a statement of opinion (or a report of either of those things) that:

• is intended to influence your client in making a decision about a particular financial product or class of financial product, or
• could reasonably be regarded as being intended to have such an influence (see section 766B).

Financial product advice generally involves a qualitative judgement about, or an evaluation, assessment or comparison of, some or all of the features of a financial product or class of financial product. While it often involves a recommendation or a statement of opinion, even factual information can constitute financial product advice if it is presented in a way that is intended to, or can reasonably suggest or imply an intention to, make a recommendation about what a client should do.

While a recommendation that a client should or should not establish an SMSF would constitute financial product advice, this is not the only kind of financial product advice that might be involved when you assist your client in relation to an SMSF. Other examples of financial product advice that might be provided in this context include advice about whether the trustee of the SMSF should be a corporate entity or individuals, and advice about who should become members of the SMSF.

Advice you give in the ordinary course of your activities as a registered tax agent or business activity statement (BAS) agent that is regarded as a necessary part of those activities is not ‘financial product advice’ and therefore does not need to be provided under your limited AFS licence: see section 766B(5)(c). To understand whether your activities are those of a registered tax agent or BAS agent, see the information on tax agent services and BAS services on the Tax Practitioners Board website.

Section B of Regulatory Guide 36 Licensing: Financial product advice and dealing (RG 36) explains the definition of ‘financial product advice’ in more detail.

Distinguishing between general and personal advice

Financial product advice can be personal advice or general advice and different obligations apply to each.

Financial product advice is personal advice if:

• you have considered one or more of your client’s objectives, financial situation and needs, or
• a reasonable person might expect you to have considered these matters (see section 766B(3)).

All other financial product advice is general advice: see section 766B(4).

A number of obligations only apply when you give personal advice, so it is important to understand this distinction. For example, the obligations to comply with the best interests duty and to be listed on the financial advisers register only apply in the context of personal advice to retail clients.

For more information on the distinction between general advice and personal advice, see Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244).

Distinguishing between specific product advice and class of product advice

‘Class of product advice’ is a kind of financial product advice that relates to a class of financial product but does not include a recommendation about a specific financial product: see section 989B(4). The examples in Table 2 below illustrate the difference.

Table 2: ‘Class of product advice’ and ‘specific product advice’

Class of product advice	Specific product advice
You recommend that your client should put their money in a term deposit, without recommending a particular product.	You recommend that your client should put their money in a term deposit with ABC Building Society because it has a good interest rate.

Class of product advice (like specific product advice) can be either personal or general.

Arranging for another person to deal in an interest in an SMSF

You arrange for your client to deal in an interest in an SMSF (under section 766C(2)) if you bring into effect the issue, disposal or acquisition of an interest in an SMSF.

As a limited AFS licensee, you might be authorised to arrange for your client to issue, acquire or dispose of an interest in an SMSF. If you do have this authorisation, you are permitted to take practical steps to enable your client to set up, issue interests in, and join their SMSF (and you would be required to give your client a Financial Services Guide before doing so). The following are examples of activities which would constitute arranging for a person to deal in interests in an SMSF:

• establishing an SMSF for your client (this might include sourcing a trust deed for the SMSF, applying for an Australian Business Number and Tax File Number for the SMSF, setting up a company for use as trustee of the SMSF and registration of the SMSF with the Australian Taxation Office)
• taking practical steps to add new trustees and members to an existing SMSF.

SMSF establishment services often involve financial product advice

We expect that a client who approaches a limited AFS licensee, or a representative of a limited AFS licensee, for services relating to the establishment of an SMSF would, in most cases, be receiving financial product advice. This is because:

• we expect that clients would typically choose to approach a person who is licensed to give financial product advice in the expectation of obtaining some expert recommendation or statement of opinion about the course of action they are taking in relation to the SMSF
• the definition of financial product advice (as explained above under ‘Providing financial product advice’) is broad enough to cover a wide range of discussions about SMSFs (and not solely discussions about whether the client should establish an SMSF). It includes any statement of opinion or recommendation that is intended to influence a client in making a decision in relation to an SMSF.

However, in some limited cases, you might assist your client to establish an SMSF without providing financial product advice. You would still be providing your client with a financial service in this instance (i.e. the financial service of arranging for the client to deal in an interest in an SMSF). The service of arranging to deal in an interest in an SMSF without providing financial product advice is sometimes referred to as SMSF establishment services or SMSF ‘execution only’ services.

You might arrange for your client to deal in an interest in an SMSF without providing financial product advice if, for example, a client approaches you having already made a decision to establish an SMSF and they only want assistance with the practical steps required to establish it. To ensure that your client does not believe you are making a recommendation about the appropriateness of an SMSF for them, you should make it clear to your client that you are not providing advice.

Scope of arranging authorisation limited to SMSFs

It is important to note that an authorisation to arrange for your client to deal in interests in an SMSF does not extend to other products. For example, if you have this authorisation you can carry out the SMSF establishment services referred to above (or arrange for any other dealings in interests in SMSFs to take place), but you cannot arrange for your client to dispose of their interest in an existing non-SMSF superannuation fund.

However, even though you cannot arrange for your client to dispose of their existing interest in a non-SMSF superannuation fund, you can still perform certain tasks for your client in relation to such a fund that do not go as far as arranging and for which you do not need to be authorised. The examples in Table 3 below illustrate the scope of the activity of arranging to deal in that context.

Table 3: Scope of arranging to deal

Activities where no ‘arranging’ likely to be involved

Activities that are likely to   amount to ‘arranging’ for your client to   deal

You assist your client to complete a form to dispose of their interest in their existing non-SMSF superannuation fund by pointing out where they should complete their details on a form, or typing those details into an electronic form (e.g. the details of the client’s name and address). You assist your client to complete a form to dispose of their interest in their existing non-SMSF superannuation fund by explaining the meaning of questions on the form or suggesting answers to those questions.

Your client hands over a form that must be completed to dispose of their interest in their existing non-SMSF superannuation fund to you and you complete the form in its entirety. You carry out the whole process of disposing of your client’s interest in their existing non-SMSF superannuation fund.

Section D of RG 36 explains the concept of ‘arranging’ in more detail and describes some exemptions that might apply.

Where can I get more information?

• Limited AFS licensees – check whether you are a limited AFS licensee or a representative of a limited AFS licensee
• RG 36 Licensing: Financial product advice and dealing
• RG 175 Licensing: Financial product advisers—Conduct and disclosure
• RG 244 Giving information, general advice and scaled advice
• INFO 228 Limited AFS licensees: Advice conduct and disclosure obligations, which explains what you need to do when you provide advice to retail clients (especially advice about SMSFs)
• INFO 229 Limited AFS licensees: Complying with your licensing obligations, which explains what you must do as a limited AFS licensee on an ongoing basis
• Limited AFS licensees: Quick guide – download a ‘quick guide’, which highlights some of the main obligations that apply when giving advice to retail clients under a limited AFS licence

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.