There have been a raft of Financial Services and Credit Panel (FSCP) decisions related to superannuation over the last few months, however, these have largely been confined to contribution errors resulting in tax bills for clients.
In its latest decision, however, the FSCP found that a financial adviser recommended clients switch their superannuation and invest in an inappropriate financial product.
While the adviser is anonymised as “Mr V”, the FSCP said he was the sole director of a company that holds an Australian Financial Services Licence and is the responsible manager and key person under that licence.
“The relevant provider recommended in a statement of advice presented to Client A on 8 February 2022, Client B on 18 February 2022 and Client C on 30 March 2023 that each client switch their existing superannuation into a new product and invest part of it in a financial product associated with the relevant provider,” the panel said.
“The sitting panel determined that in giving that advice, the relevant provider contravened s961G of the Corporations Act 2001 by giving advice that was not appropriate, and s961J(1) of the Corporations Act 2001 by prioritising the relevant provider’s interests over the clients’ interests.”
It also found that Mr V contravened s921E(3) of the Corporations Act 2001 by failing to comply with the Code of Ethics – specifically noting Standards 3, 7 and 9.
“The sitting panel’s finding in relation to Standard 3 was that advice was given where the relevant provider had a conflict of interest,” the FSCP said.
“In relation to the Standard 7, the sitting panel made two findings: one, that the relevant provider did not obtain the clients’ free, prior and informed consent to all relevant remuneration arrangements by failing to disclose the benefits that the relevant provider and their associates would receive as a result of the clients’ investment in the recommended financial product; and two, that the relevant provider failed to ensure that their fees and charges were fair and reasonable and represented value for money by charging the clients extraordinary fees for advice that was not appropriate and conflicted.
“The sitting panel’s finding in relation to Standard 9 was that the relevant provider made a recommendation that was not in good faith because the recommended financial product was performing poorly and expensive, and therefore was not an appropriate investment for the clients.”
In response to the contraventions, the FSCP issued a written direction to the relevant provider requiring the relevant provider to report to ASIC on a range of specified matters by 31 October 2025:
- A report produced by a compliance consultant following a comprehensive review of the relevant provider’s Australian Financial Services Licence.
- A report produced by the compliance consultant containing the results of the pre-vetting of the next 10 pieces of the relevant provider’s advice.
- Documentation showing the relevant provider’s successful completion of an ethics and professionalism in financial services course.
- Documentation showing that the relevant provider is no longer an associate of the financial product that was recommended to Client A, Client B and Client C.
So let’s say the recommended product had performed well and was competitively priced, and the advice fees were fully disclosed and were fair and reasonable. There would have been no breach of Standards 7 or 9 in that case.
But there still would have been a breach of Standard 3. There is a breach of Standard 3 every single time an adviser recommends a product from a related entity. This happens in pretty much the majority of cases now, given the proliferation of licensee SMAs, and partial ownership of advice firms by product companies.
Why is Standard 3 only enforced if multiple other Standards are breached at the same time?
Good to see ASIC looking at these conflicted advice issues.
Dodgy Dixons sold their inhouse US Real Estate disaster MIS for a decade, that ASIC even investigated at one stage and ASIC did absolutely NOTHING until it totally blew up years later.
– ASIC needs to be held Responsible, along with
– Dixons directors
– Dixons Responsible Managers &
– Dixons head of Advisers, Nerida Cole, who is now somehow working for Govt overseeing Adviser Regulation.
I’m a bit confused.
How is this any different to any vertical integrated adviser’s mode of operation?
Be it an industry fund, property fund spruikers with a AFSL, or the new wave of “consolidators” buying AFSLs and wrapping everyone into their own SMAs with MDAs?
Yet only one is pinged.
Remember Dixon and global capital and the like.
No constructive information here, what was the client scenario, how can the industry learn from this?
Notwithstanding the poor FSCP excuse of a reason of “underperformance + high fees” (so if there’s another situation where fees were high and it was an average performer is that all fine and dandy??)..
This is the type of incompetency that’s led the industry to where it currently is now.
Not helpful.