“Henry, have a look at this. It’s a 1975 original Holden HJ Monaro Coupe. I got these photos from a friend of a friend who had this car garaged since he bought it. It only has 27,000 kilometres on it. There’s one that went to auction at Shannon’s last year and sold for $98,500 and there’s one on eBay now for $109,000. I can pick this up for $50,000.”
Brad hands his mobile phone to Henry who pours over all the photos and remembers the good old days when he had a similar Holden. He also takes a look at the auction results and the eBay listing Brad mentioned.
“Brad, this looks great. What a car and all original. I can’t believe this only has 27,000 kilometres on it. If you don’t pick this up, I think I might, but I’ll have to run it by my wife first.”
They both have another sausage and drink as they recall a number of cars from the 70s, when they were young men. The conversation then turns to the current price of these older vehicles and whether or not this is a great deal. Brad then turns to Henry.
“So, mate, is this a good investment?”
Financial advisers often find themselves in discussions about investments, estate planning, retirement, and insurance during their own leisure time. It’s important to understand the potential risks that participating in such conversations poses to both themselves and their licensee.
The Corporations Act states that a licensee is responsible for the conduct of a representative whether or not their conduct is within authority. Specifically, 917B of the Corporations Act states, “… the licensee is responsible, as between the licensee and the client, for the conduct of the representative, whether or not the representative’s conduct is within authority”.
This wide-ranging definition binds the financial adviser’s conduct to the licensee. For practical illustration purposes any financial advice given to a client, or potential client, could fall within this definition and hence any financial detriment suffered by a client, or potential client, may come back in the form of a complaint or legal action.
AFCA now aligns the type of complaints they will hear with the Corporations Act. So potential claimants can get “a free shot” at the licensee as AFCA is a free service to consumers.
Complaints that have fallen within this type of over-arching purpose have included inappropriate investment advice and advice provided by a financial adviser after their authority was revoked.
Synchron recommends that financial advisers only deal within their authorised areas of expertise and tread carefully whenever topics of a financial nature arise in conversations, especially with clients who are also friends, so that they do not risk their licence. In the event they find themselves discussing topics of a financial nature they should make it clear that their opinion is one of a general nature and has no personal foundation for advice.
The Corporations Act 2001 is relatively new law; hence cases and precedent are scant around this issue, apart from those around ostensible agency. However, a look into the older agri-investment referral schemes prior to the global financial crisis may shine some light on how the courts may treat these issues. In Tomasetti v Brailey the financial adviser’s wife succeeded in a claim for inappropriate advice.
While this example may sound extreme, the litigious nature of our society may see cases like this come to light.
In regard to Henry’s barbeque conversation, a good answer from Henry might be, “Mate, let’s leave this alone and go watch the footy”.
Justin Harding, head of legal and dispute resolution, Synchron
The stupidest thing about all of this is that a qualified and experienced financial adviser would generally be the best person with whom to engage in dialogue about a potential investment (all things being equal). However, this adviser cannot provide any information that could be construed as advice, unless done via the ‘proper’ channels (read – expensive, time-consuming and unwieldy). Yet uncle Bob, who is on welfare and has never worked a day in his life – but with an uncanny knack for sophistry – is free to spruik any investment he wishes, to all and sundry, with complete impunity.
Something is wrong in the world today…..
The Barefooted Investor makes recommendations in his books that readers buy an old Toyota Camry. It might be quicker to write a book making the suggestion that it would be to write a SoA.
[quote=Anonymous]Strategic advice is covered under the Corps Act which may not include a product. You’re plain wrong. [/quote]
No it isn’t (only financial product advice is). Please point out where you think strategies are captured in Corps Act?
“While this example may sound extreme, the litigious nature of our society may see cases like this come to light.” The government has spun a web around advisers now making them responsible for just about everything and even let’s them have ‘a free shot’ at AFCA.
This is not new news, and how is that a good answer? A good answer is, “Sorry mate, you know that I’m not allowed to answer that because it could be misconstrued by someone here as financial advice, and as you know, personal financial advice should be documented in a Statement of Advice that also sets out all the risks and benefits of a strategy, as well as any costs and alternatives considered…”. *crickets*. They’ll never ask you again. Also, if you’ve explained to clients previously that any personal advice needs to be documented, it’s unlikely a client who has received advice from you previously would even ask for your comment on such a question, unless they’re the type of client who tries to get what they can for free in which case I would suggest reviewing your business strategy and type of clients you are targeting.
If it’s not a ‘financial product’ under Australia’s poorly drafted legislative definition ‘financial service’ then what’s the problem?
Does not need to be a financial product to come under the Corps Act provisions. That’s the whole point of the article.
Yes it does, otherwise telling someone which brand of toilet paper to buy would be regulated.
Strategic advice is covered under the Corps Act which may not include a product. You’re plain wrong.
I disagree with you also….The corps law is only about “financial products” ….if it’s not a financial product or involves a recommendation to hold, dispose increase a financial product (including cash)… it’s not advice requiring a SoA.
Tell him to call an Industry Super fund and they’ll advise him to sal sac into super instead…Look if stuck you could send him an FSG, then a letter of engagement, then a fact find to complete/ update,all with separate documents requiring signing acknowledging receipt,… then finally end it with an estimate for an SoA of about $5,000…. i find that works for 95% of new clients…oh wait that’s the financial planning process. Thank God for Tik Tok.
What if Henry was talking about how tasty the sausages were ? Would Henry be able to complain if I were to recommend the sausages and he got salmonella? Just wondering where product advice stops.. Asking for a friend.
A better answer would be “how about I give you some advice about a Co-Contribution instead and I charge you $5,000 for a SoA”. Look this is unbelievable….Henry’s a Financial Planner so he wouldn’t have any friends, (bogged down in red tape) and he’d be drinking alone…..he’s probably just passed his FASEA exam and his last compliance audit, but sacked a couple of staff and his wife’s left him for the rich Paraplanner or Compliance specialist. If he worked for AMP he’d definitely have no friends, and be even worse.
*pores over all the photos. Unless of course, Henry was pouring the drinks at said BBQ all over the photos, but that wouldn’t be nice now would it….
Yay. I’m glad someone noticed the “pores” incident. Also the ‘70’s car would more likely have miles on the clock, not km. If it had km, they often only went to 100,000km, so if it said 27,000km the clock could have turned over one or more times.
a simple reply is ” I do not know and it is not by expertise” – your shout.
That statement would pose too great a risk…I think the only course of action is to get him so drunk he forgets the entire conversation ever happened.
Not hard is it! Not sure mate, who knows blah blah, what’s the footy score? Move on.
A better answer from Henry might be: my answer is so risky to me and my licensee that I can’t answer it. If that sounds completely stupid then write to your local parliamentary member because right now, that’s the law.
TBH I don’t see why as an adviser you’d be giving someone advice on buying a car? It’s not what we do.
The Corporations Act expands the area of advice to ‘just about anything’. It’s poorly drafted law and that’s the whole point of the article. The scene, while obviously made up, is actually a true reflection of the legal framework that the legislators have put the industry in.
Does that mean, Michael, that you’d [i]want[/i] to respond, if only you could?? Really? Here’s the problem many advisers have: not being able to say the simple words “I don’t know.” It’s OK to not know everything and it’s really dumb to pretend that you might…
Owning 40 odd historic cars, I doubt why my old financial planner role would be in question given that I’m a motoring enthusiast and hold extensive knowledge on the subject. So, I would be expected to give an opinion being a respected club member and one who focuses on club growth n Harmony.
Not in your league on this, but love my older cars. She’d be a’buy’ for me! 🙂