Sources and responsibilities of advice

Although we have introduced you to different types of investments and the manner in which you should evaluate them, there are a number of organisations where you can seek detailed advice. This chapter outlines the most common sources of advice, the responsibilities of advisers to you and the laws that govern them.

Sources of information and advice

Despite heavy regulation, the finance industry has its fair share of unethical, and sometimes illegal, operators. An investor must learn to identify a source they can understand and trust before they invest.

The media, including newspapers and other publications, provide current news on financial events that you can use to research market trends and opportunities. Most newspapers have a finance or business section, while some financiers prefer specialist publications, such as the Australian Financial Review. There are also a number of credible online sources that report on the industry, though you must use your judgement to determine which sources are trustworthy.

Financial institutions provide advice on investments that they offer. If you shop around and ask questions, you can compare different products from a range of providers. Institutions with this information include any company that provides these investment products, such as banks, building societies, credit unions or insurance companies.

A number of people who work in the industry can also help you make informed investment decisions. As well as investment advisers who work for financial institutions, you can obtain advice about shares from stockbrokers and other kinds of advice from independent financial planners. Make sure your adviser has an Australian Securities & Investment Commission (ASIC) licence before asking for their advice.

Responsible advice

A responsible adviser will gather as much information about you as possible in order to ascertain which investment may suit you and your situation. They should determine your financial position by taking into account your income, assets, debts and financial commitments and then speak to you directly about your investment objectives. They should also take into account your personality and assess your risk tolerance. After they create a plan for you, they should follow up by reviewing and altering the plan regularly according to the market and any change in your circumstances. Any information that you disclose to an adviser should remain confidential.

Regulatory statutes

The law is designed to protect investors from unscrupulous operators in the finance industry, particularly investors who do not have the education or qualifications to understand the industry. Because of the complex nature of the economy, it is easy to mislead investors who are not professionally involved in finance. As such, laws pertaining to providers and advisory services ensure that providers in the industry are held accountable for the advice dispensed.

The Corporations Act 2001 (Cth) is a statute that applies to all corporations, including those that provide financial products and services. It sets legal boundaries with regard to the assumptions that consumer can make about a company's compliance with the law, including assumptions relating to the legality of the financial product and the qualifications of the advisers. The Corporations Act also deals with false and misleading advertising of products.

In addition to a financial services guide, an adviser is obliged, by the Financial Services Reform Act 2001 (Cth), to provide you with a product disclosure statement that contains details of the product, all costs and fees, including commissions, all the risks associated with the investment plus any other information relevant to the advice. This document will also specify your legal right to proper complaints handling and the applicable cooling-off period.

A cooling-off period lasts for 14 days, starting from when you receive written confirmation of the investment or at the end of the fifth day following the date of issue. You must notify the issuer in writing, within the cooling-off period, if you wish to withdraw or cancel your investment. You are entitled to a refund that may or may not be subject to administration charges or affected by market changes. You may also cancel or withdraw after this time, subject to penalties set by the financial adviser.

As part of the financial service, an adviser would also give you a statement of advice, which is a document that details their recommendations with regard to your investment, as well as any additional information to support their recommendation.

Regulatory bodies

Under the Financial Services Reform Act 2001 (Cth), all financial planners must attain a licence from ASIC, which ensures that the adviser must maintain a standard of service that includes proper training of staff, ethical conduct and adequate complaint-handling procedures. Legal provision for ASIC comes from the Australia Securities and Investments Commission Act 2001 (Cth), which establishes ASIC's power with regard to enforcing the Financial Services Reform Act 2001 (Cth).

If a company chooses, they can obtain voluntary membership to organisations, such as the Financial Planning Association of Australia (FPA), that have a separate code of ethics and additional rules of professional conduct.