The Bulletin August 2018

FINANCIAL SERVICES
The need to hold an Australian Financial
Services Licence for share valuations
HUGH MCPHARLIN, PARTNER, NEXIA EDWARDS MARSHALL
If a person carries on a business of
providing financial services, they must
hold an AFSL or act as the representative
of an AFSL holder, unless an exemption
applies (s911A of the Corporations Act).
A person provides a financial service
if they provide financial product advice
(s766A).
Financial product advice means a
recommendation or a statement of
opinion, or a report of either of those
things, that is intended to influence a
person or persons in making a decision
in relation to a particular financial
product or class of financial products,
or an interest in a particular financial
product or class of financial products or
could reasonably be regarded as being
intended to have such an influence
(s766B) (emphasis added).
A financial product includes shares in
a proprietary company (being a security)
or units in a unit trust (being an interest
in an unregistered managed investment
scheme (s764A(1)(a) and (ba)). Generally,
a business or an individual asset, such
as an item of intellectual property, or
a discretionary trust, would not be a
financial product.
The Corporations Regulations set out
circumstances in which persons are taken
to not provide financial product advice
(s766A(2)(b)) (carve outs).
Relevantly, r7.1.29(3)(c) states that a
person will not be providing financial
product advice if the person provides
advice on the … valuation… of an
incorporated or unincorporated entity if
the advice:
i. is given to a person who is, or is likely
to become, an interested party in the
entity; and
12
THE BULLETIN August 2018
ii. to the extent that it is financial product
advice - is confined to advice on a
decision about:
a. securities of a body corporate, or
related body corporate, that carries
on or may carry on the business of
the entity; or
b. interests in a trust (other than a
superannuation fund or a managed
investment scheme that is registered
or required to be registered) the
trustee of which carries on or may
carry on the business of the entity in
the capacity of trustee; and
iii. does not relate to other financial
products that the body corporate or
the trustee of the trust may acquire or
dispose of; and
iv. is not advice for inclusion in an exempt
document or statement.
An exempt document or statement is a
document like a Statement of Advice.
An interested party includes a director of
a company and a trustee or director of a
trustee of a trust r7.1.29(6). Significantly,
this definition does not include current or
potential shareholders or unitholders.
Consequently, financial product advice
provided to the directors of a trading
company concerning the company’s issued
capital may satisfy the carve out and,
hence, such valuations may not require
an AFSL. Care should be exercised in
circumstances in which it is known to the
valuer that it is likely that the valuation
will be passed onto a third party (potential
buyer or seller) who is not or is not likely
to become a director.
Importantly, r7.1.29(3)(d) exempts
providing advice on shares in proprietary
companies or units in unit trusts where
the company or trust is not carrying on a
The valuation report should contain a general
advice warning, as well as making it clear that
the advice is provided by a person that holds a
suitable AFSL or is the representative of such a
person.
business and has not at any time carried on
a business, such as investment companies
holding only listed shares or real property.
r7.1.29(3)(e) exempts advice in relation to
the transfer of financial products between
associates, i.e. related bodies corporate.
Financial product advice may be given
to a third party via an intermediary as a
secondary service (ASIC RG 175.111)
which occurs where a person (the author)
causes or authorises advice to be given or
directed to a retail client, including where
the author knows or should know that
the advice or any part of it will be passed
on to a third party (the recipient) and the
advice is passed on and attributed to the
author.
AFSL engagements for retail clients
require a Financial Services Guide (FSG)
to be provided to the client as soon as
practicable after becoming aware that
financial product advice will be or is likely
to be provided and, in any event, before the
financial advice is provided, normally as an
attachment to a letter of engagement. The
valuation report should contain a general
advice warning (see below), as well as
making it clear that the advice is provided
by a person who holds a suitable AFSL or
is the representative of such a person.
ENGAGEMENTS
Client engagements generally commence
with initial contact from an instructing
solicitor or party seeking a formal
valuation or guidance as to the value of
securities or other equity interests.
Some engagements, such as engagements
providing guidance as to how securities
might be valued, rather than the provision
of a Valuation Opinion, may not be
financial product advice and, hence, are
non-AFSL Engagements.
Valuation engagements will be
documented via a letter of engagement
which is intended to record and make clear
the:
1. name of the client / instructing
solicitor(s);
2. scope of the assignment, including
clarity concerning the nature of the