ASIC consults on generic financial calculators

ASIC has released a consultation paper proposing to continue its existing class order relief on generic financial calculators subject to changes.

The existing class order [CO 05/1122] Relief for providers of generic calculators gives relief from the usual licensing, conduct and disclosure requirements provided certain assumptions are disclosed. It is due to expire on 1 April 2016.

Currently a person who provides financial product advice through, or through making available, a financial calculator does not have to be licensed or comply with the disclosure requirements for retail clients subject to certain conditions:

(a) The financial calculator must not advertise or promote a specific financial product.

(b) If the financial calculator is an electronic facility or device, the financial calculator must:
(i) enable the user to change any of the assumptions that are applied by the financial calculator in working out the estimate relating to a financial product other than a statutory assumption; and
(ii) work out or enable the user to work out an estimate on the basis of the changed assumptions.

(c) The assumptions, including any statutory assumptions, applied by the financial calculator, unless changed by the user, must be reasonable for the purpose of working out the estimate.

(d) The financial calculator must display to the user in the ordinary course of its use or have printed on it all of the following:
(i) a clear and prominent statement about the purpose and limitations of the calendar;
(ii) a clear and prominent explanation of the impact of any significant limitation of the financial calculator;
(iii) a clear and prominent statement of the assumptions;
(iv) where the estimate is of an amount payable or receivable at a future time of 2 or more years—a clear and prominent statement setting out the present value of the estimate; and
(v) a clear and prominent statement to the effect that the financial calculator is not intended to be relied on for the purposes of making a decision in relation to a financial product and that they should consider obtaining advice from a financial services licensee before making any financial decisions.

(e) The financial calculator must display to the user (including because of a step taken by the user) or have printed on it an explanation of why the assumptions, including any statutory assumption, are reasonable for the purpose of working out the estimate.

(f) If the financial calculator is an electronic facility or device—the financial calculator must not prevent the user from readily printing or electronically storing the estimate.

(g) The person must keep a copy of the financial calculator for 7 years from when it is first made available.

(2) A statement or explanation required under paragraphs (d) and (e) must contain as much detail as a retail client using the financial calculator would reasonably expect to find having regard to the nature of the calculator.

ASIC proposes the following changes and clarifications:

  • a generic financial calculator may provide results in future dollars only (i.e. the actual amount at a future point in time, rather than the amount with equivalent buying power in today’s dollars). ASIC proposes that an estimate of a future return, must be adjusted for inflation, by giving an indication of what the investment may be at current dollar values at the end of the specified term. If a provider wishes to provide a result in future dollars as well as current dollars, both should be clearly labelled so as to avoid consumer confusion. The provider of the generic financial calculator must make assumptions about the rate of inflation and those assumptions must be reasonable. ASIC considers that the discount rate should be appropriately sourced and referenced.
  • if a person relying on the relief breaches, or is likely to breach, any of the conditions in the relief, the person must, as soon as practicable, and in any case within 10 business days of becoming aware of the breach or likely breach, lodge a written report on the matter with ASIC.
  • assumptions about fees and costs must be reasonable and the generic financial calculator must include clear and prominent explanations of why the assumptions are reasonable and the limitations of the calculator.
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