The Financial Services and Credit Panel (FSCP) has determined that an adviser, anonymised as “Mr A”, contravened multiple sections of the Corporations Act as well as breaching the Code of Ethics.
Mr A gave advice to two clients in relation to insurance and superannuation after they were referred for advice from a “third party superannuation switching cold calling operator that made an unsolicited telemarketing call to them offering a superannuation review”.
According to the FSCP sitting panel’s determination, the advice provided involved contraventions of sections 961B(1), 961G, 961J(1), 921E(3), and 1041E(1) of the Corporations Act.
“The relevant provider did not adequately consider the clients’ objectives, needs and financial situation or base all judgements on their relevant circumstances. Nor was the advice given to the clients appropriate in the circumstances,” it said.
“For example, the client files did not contain material justifying a) recommendations to switch superannuation funds in circumstances where the client was comfortable with their position and/or would receive small annual savings in product fees while incurring significant additional costs; and b) the assertion that the client was not adequately self-insured.”
Along with noting that the client files didn’t contain evidence the clients “either wanted or needed ongoing advice to warrant ongoing fees”, the FSCP found that Mr A received soft benefits under a commercial agreement in advising the clients to switch superannuation funds and invest their superannuation funds in the product recommended.
“In the circumstances, the sitting panel was satisfied that the relevant provider prioritised the relevant provider’s own interest over the clients’ interests,” it said.
Mr A also gave the clients misleading information that was “likely to induce them to apply for the recommended investment product”, specifically pointing to a graph and statement with the statements of advice (SOAs) that detailed the product’s outperformance over a five-year period, even though the product had only been in existence for one year.
“There was no evidence that the clients understood the meaning or significance of ‘back tested results’ as used for the recommended product in the graph,” the FSCP said.
“Therefore, in giving the advice, the relevant provider failed to demonstrate the Code of Ethics’ values of honesty and fairness, and breached Standards 3, 5 and 9 of the Code of Ethics.”
Mr A will be required to receive special supervision from an independent person with expertise in financial services laws compliance to pre-vet and audit the next 10 SOAs that include a recommendation in relation to insurance; and the next 10 SOAs that include a recommendation in relation to superannuation, that the relevant provider intends to present to a retail client.
The relevant provider is required to provide the independent person’s findings as a result of their audit to the Australian Securities and Investments Commission, and the relevant provider must bear the cost of the work undertaken by the independent person under the written direction.
