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NEWS - PLANNING
Planners exposed en masse to privacy legislation
3/20/2002
The advent of the Privacy Act will have a particularly noticeable impact on Australia's financial planners who, by definition, routinely deal in sensitive, private information about the affairs of their clients.
Acknowledging this, the Financial Planning Association of Australia has issued an 89-page Privacy Implementation Kit to its members, noting that all financial planners should have a comprehensive compliance program in force.
Although there is an in-principle exemption for small business from the privacy principles, in cases where annual turnover is less than $3 million, virtually all financial planning entities will be caught under one or more of the sizeable qualifications.
Nearly all financial planners hold their licence effectively as a sub-agent for a principal dealer firm, as an authorised representative or proper authority holder (in the somewhat formal phraseology of the relevant legislation, implemented in December 2001).
A dealer group licensed by the Australian Securities and Investments Commission, such as Count Wealth Accountants, for example, would have as many as 520 franchisees, each being a proper authority holder, in exchange for regular financial information updates, training and related services.
Any small business which has an operating association with an enterprise over the $3 million annual turnover threshold itself also becomes subject to the privacy legislation. That would automatically pick up virtually all of the financial planning industry.
Further, most financial planners will routinely pass sensitive financial client information on to various service providers, such as the information consolidators; master trusts, wrap services and the most recent addition, the aggregation services (which gather together financial information from various sources by "screen scraping" using the internet).
Once again, here is an association with an entity with a turnover of more than $3 million annually (institutions such as AMP and Macquarie Bank offering such services are hardly minnows). On top of this, although they are not selling sensitive information to unrelated third parties (such as marketing groups), even dealing in financial information with associated commercial partners could well bring planners under provisions which relate to passing sensitive personal information on to other groups.
If a financial planning firm is offering financial planning advice to employees of Commonwealth agencies, under a Federal human resources contract, it is automatically caught by provisions that the privacy rules apply to all entities which are contractors or sub-contractors on Commonwealth contracts.
The privacy rules could also come into play if a financial planner's activities include transmission of sensitive private information to overseas countries not considered to have an adequate privacy regime of their own.
That, by the way, includes several members of the European Community who have not yet passed required individual country privacy legislation, in response to the celebrated Privacy Directive from the central commission in Brussels.
Such personal information could be passed in the course of placing funds in overseas investments, shares, funds or property, for insurance or reinsurance contracts abroad and other financial purposes.
"The Act forces financial planners to think about privacy in a more systematic and strategic way," says Arun Abey, executive chairman of IPAC Securities. "But there's been no major problems with privacy. That's what clients would expect, demand and deserve. Trust has been an important element, and once lost, it's gone. Financial planning firms have not been in the business of selling their client databases.
"It's formalised what has been implicit and sometime explicit. It allows the client to get a printed privacy policy."
A serious privacy issue for financial planners to watch in the case of couples, is whether both spouses are authorised to see financial data and make financial decisions, whether it must be both jointly, or just one with the other not to be informed or given access.
As if all that isn't enough, financial planners also face the task of revising their systems to accommodate the expanded provisions of the new Financial Services Reform Act, which came into force on March 11.
Among other things, this seeks to make remuneration patterns more transparent to clients, requiring more information on fees and commissions (in effect, less financial privacy for financial planners while their clients are getting more). Planners also need to watch personal comments added to client files.
"Probably the critical thing is that because the client might ask for the file, you're careful what you write," says Jeff Wrightson, the financial planning manager NSW, for Macquarie Financial Services.
"From a financial planning perspective, if for whatever reason a complaint was lodged, it could come up in a court of law.
"We have some documentation advising clients they can ask for their personal information, and how we use their information in the bank, for cross-promotion of other services and products (they can opt out). That information is so confidential we'd never sell it."
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