AFSL explained: How to spot a legitimate provider

Australians are being bombarded with investment opportunities online, but not all of them are what they seem. In an era of cloned websites, fake advisers and sophisticated scams, a quick AFSL check could stop you from becoming the next victim.

You've come across an investment fund online with impressive historic returns. Or perhaps it's a financial advisor on social media whose content resonates with you.

In a world where investment scams, cloned websites and online impersonators are common, it pays to proceed with caution - to be able to separate legitimate financial providers from fraudsters.

The question is, where can you start? One piece of information can help.

It's not the rate of return on an investment or someone's Instagram follower count - it's an Australian Financial Services Licence (AFSL).

What is an AFSL?

Issued by the Australian Securities and Investments Commission (ASIC), an ASFL is a mandatory requirement for individuals or businesses wanting to conduct financial services in Australia.

That includes everything from providing financial advice to managing investments and offering services related to superannuation.

Before granting a licence, ASIC will assess whether a business has the financial resources and competency needed to provide services in a particular area.

However, it's important to note that it's not a seal of approval from the regulator, nor is it a guarantee of the quality of the advice or products being offered.

The rules financial providers must follow

Obtaining an AFSL isn't a one-off exercise. Once licensed, businesses have a number of ongoing responsibilities that differ based on the specific services or products they offer.

The list of obligations is extensive, but it includes maintaining risk management systems, holding appropriate insurances, being in good financial standing and ensuring that staff and representatives are adequately trained and monitored.

Most licensees also need to become members of the Australian Financial Complaints Authority (the ombudsman that deals with consumer and small business complaints), in addition to having any required internal dispute resolution systems in place.

Ultimately, ASIC says that ASF licence holders have a general obligation to provide efficient, honest and fair financial services.

How to check if your provider has an AFSL

Fortunately, ASIC's Professional Registers Search makes it easy to find out whether or not a business holds an AFSL, as well as the kind of services they are licenced to provide.

To conduct a search, you'll need the name of the business, licence number, registration number, Australian Company Number (CAN) or their Australian Business Number (ABN).

You can even search the register by AFSL number in order to confirm that the AFSL that a business is advertising is still active or actually linked to them.

ASIC has also recently started publishing website addresses of AFSL holders in the register in order to help Australians differentiate between genuine and imposter websites.

How an AFSL check can help you avoid scams

At the end of the day, consumers may still be unhappy with a service or product they are provided by a business holding an AFSL. A licence alone isn't a guarantee of quality in that respect.

Nor does the presence of an AFSL eliminate risk. For instance, some of the advice businesses that allegedly encouraged clients to invest into the First Guardian and Shield funds held licences.

What using ASIC's register to confirm that a business has a legitimate AFSL can do is help Australians identify potential scams or impersonations before it's too late.

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