Case Scenario: PART A: FINANCIAL SERVICES LICENSES AND PRODUCT DISCLOSURE

Question 1: Jenny Smith worked for many years as a life insurance agent for Eternal Life Ltd, a large insurance company, selling life insurance policies. Recently, she severed her connection with Eternal Life in order to establish her own business as a financial planner. Jenny advertises the fact that she has now commenced business as a financial planner in the Canberra Times.
Building upon her long experience with Eternal Life, Jenny plans to market and sell a wide range of products that will include Group Master Trust superannuation policies; personal and public offer superannuation policies; interests in pooled superannuation trusts; shares and debentures in publicly listed corporations; and interests in managed investment schemes.

- What are Jenny's immediate obligations under the Corporations Act 2001?

- What are Jenny's continuing obligations under the Act?

Question 2: Shortly after she commences business, Jenny is approached by John. John was one of her oldest clients when she worked with Eternal Life Ltd. While Jenny worked with Eternal Life, John had given her very full details of his financial situation and provided her with copies of all relevant superannuation policies, income and tax statements. John is now concerned that he may not have provided sufficiently for his superannuation and he requests Jenny to devise a suitable superannuation strategy for him. Jenny knows of a personal superannuation policy, offered by Eternal Life Ltd, which would be suitable for his purposes. She arranges for John to take up the personal superannuation policy offered by Eternal Life Ltd.

- What are Jenny's obligations under the Corporations Act in advising John - and what are her potential liabilities should the personal superannuation policy prove insufficient for John's needs?

Question 3: Some time later, Jenny telephones John to suggest that he might wish to consider purchasing interests in an equities fund operated by XYZ Ltd. Jenny has received a Product Disclosure Statement (PDS) from XYZ and this PDS suggests that the interests offered present an excellent income yielding investment that fit John's long-term plans. Being so familiar with John's financial situation, Jenny does not feel she needs to provide John with a copy of the PDS. Unknown to Jenny, the PDS in fact contains an error and the investment will not yield the income that John will require to secure his future. XYZ Ltd later writes to all advisers asking that this mistake be noted.

- What are Jenny's obligations in providing the PDS to John, and what are the potential legal liabilities of Jenny and XYZ Ltd in respect of the mistake in the PDS?

Question 4: George is a financial planner who holds an Australian Financial Services Licence. He has become friendly with his neighbour Julia and on Saturday nights they regularly enjoy a drink together at Julia's house. Over time, George learns that Julia has been divorced and that she has two young children to support. Julia tells George that she is concerned that she may not have made sufficient provision for her superannuation. He suggests that Julia consider a personal superannuation product offered by Personal Insurance Ltd. Julia purchases this product and contributes $5,000 to the fund. However, she then experiences financial difficulties. Her lease has expired and she desperately needs to buy a house for herself and her children. She does not have the $5,000 required for the deposit on the house she would wish to buy.

- What are the legal obligations and potential legal liabilities of George and Personal Insurance Ltd? What remedies might be available to Julia?

Question 5: George is also approached by Jane, a small investor who has seen an advertisement of George's in a newspaper. James seeks to invest $2,000. George gives Jane advice on a number of different managed investment schemes and fixed interest options that are available. Together, George and Jane consider a circular that has been sent to George by Managed Investments Ltd, a company offering units in a registered managed investment scheme. The scheme is said to provide both income and capital growth for unit holders. George advises Jane about the relative attributes of this scheme and other alternative investments. On the basis of the company's circular, he recommends that Jane buy units in the scheme managed by Managed Investments Ltd. Jane instructs George to acquire units in the scheme on her behalf. George does this. Unknown to George the circular contains a factual error. No income is in fact to be paid to the scheme unit holders.

- What are the legal obligations and potential liabilities of George and Managed Investments Ltd? What remedies may be available to Jane?