Dealer doomsday

As the almost-400 authorised representatives of Dover Financial Advisers were packing up for a much-needed long weekend with family and friends at a busy time of year, the director of their licensee was typing away at what he readily admits was “unhappy news”.

In the form of a Friday afternoon email, Dover director Terry McMaster abruptly announced that the business would be no more, providing little information beyond a vague reference of an ASIC “negotiation” and “agreement” that was likely news to almost all of the authorised reps.

The outcome of the email, and its initial exclusive publication by ifa, was significant. Advisers were ordered to put down tools and to stop providing new advice to clients immediately, with just a few weeks given to find new licensing arrangements (something that in the current climate is easier said than done).

If, as Mr McMaster seemed to suggest, the immediate closure and cancellation of the AFSL is on ASIC’s orders, then the move is somewhat unprecedented in the history of financial services. Even the gross misconduct uncovered over recent years at institutional dealers like Commonwealth Financial Planning and Financial Wisdom resulted in the ability for second chances and recourse to justice.

It must be stressed that many questions remain and information remains scant at this stage, but there are two plausible scenarios that seem to be doing the rounds over the weekend in the discussions ifa has had with Dover advisers, industry figures and those occurring in the private email threads of the authorised representatives (obtained by ifa).

Either ASIC’s surveillance of Dover has found something so egregious, so grossly unethical and harmful, that it warrants an immediate closure and cessation of trading and an unprecedented response from the regulator.

Or alternatively, Mr McMaster is bluffing, over-emphasising ASIC’s involvement and closing the business abruptly for his own personal reasons, while claiming regulatory overkill.

According to ASIC’s brief statement on the matter, the truth may lie somewhere in between. ASIC has confirmed that it has been investigating Dover since 2017, but at the same time indicated that the ultimate decision to cease providing financial services rests with the Dover leadership.

Regardless of the reasons for this monumental development in the industry, the broader relevance is just how difficult the business of licensing has become.

Many of the problems raised by the royal commission, and the inquiries and investigations that preceded it, are either causally related or in some way associated with the AFSL regime and its unusual implementation in Australia.

It must now be acknowledged that the very practice of allowing third parties to authorise advice in separate business entities has caused more problems than it solves for consumers and advisers alike.

There are many good-willed dealer groups focused on quality advice and the public interest, but too often the dealer group structure has allowed the owner of the AFSL to dictate terms, engender fear and control small businesses to the detriment of clients.

Similarly, the dealers themselves face significant risk, as droves of advisers leave the institutions with opaque track records and audit information and the political system continues to escalate red tape and oversight. 

That is not to mention the perilous situation of dealer group commerce, a business model now in flux as the industry goes about the thorny process of separating product from advice.

The sad story of Dover proves the inherent flaw with licensee businesses: if regulation is the premise upon which a business is built, then regulation can take it away.

ifa wishes independently-minded and client-centric dealer networks well on the road ahead – we have no agenda against them – but with calls for an individual adviser registration model escalating, and further reform probably on the horizon, it is unlikely to become any smoother.

Finally, a word on the Dover reps themselves. Regardless of the circumstances that may have precipitated the investigation, all Australians should have sympathy for these 400-odd hard-working men and women.

These small businesses and their clients now face serious financial (and likely mental health) risks as they deal with the fallout from the shock closure of their licence.

While we are not yet privy to the details, it seems to be yet another example of executives and government officials doing a deal in the dark while regular folks pay the price.

One of the silver linings of this debacle may be the sense of community and purpose it inspires.

ifa has been heartened to hear the resilience and positivity of many Dover advisers who have spoken to us off-record over the weekend or trusted us with documents and private conversations.

We will continue to seek answers and justice for these advisers and their clients, and to continue asking tough questions about the legislative and business model industry norms that are no longer working.

We believe the future of advice remains positive, and that for those businesses who remain focused on the consumer interest, their chances of survival are far from ‘Dover and out’.

[email protected]