Advisers need to consider managing conflicts of interest not just with product providers but within their own business in order to stay on the right side of the corporate regulator, according to BT.
Addressing the SMSF Association National Conference in the Gold Coast on Wednesday, BT national manager of SMSF strategy Neil Sparks referred to the recent case of an adviser banned for four years for not adequately managing conflicts of interest when recommending setting up an SMSF.
“It was an advice business with an SMSF business that was operated in house, so doing in-house SMSF administration. The director of the advice business was also the sole shareholder of the SMSF administration company,” Mr Sparks explained.
“In ASIC’s view, he failed to investigate alternative strategies and products that may have been suitable and prioritise the client’s interest ahead of his own. Because there wasn't a process in the file that demonstrated how they had looked at alternatives to an SMSF, the impression was that they went straight to an SMSF.”
While many advice businesses would be in the same boat of referring clients to additional business lines within their practice, this was not an issue if the adviser could clearly demonstrate that they had looked at all other options for the client and determined that the additional services were warranted, Mr Sparks said.
“If I was the owner of an accounting firm that had an advice business in house and we do referrals from the accounting business and give them to a financial adviser, employ an adviser to set up SMSFs that you are going to do the administration for, would we not be in a similar position to this person that’s been banned for four years?” he said.
“I think the only thing that’s going to prevent this from occurring is process, having a really clean process.”
Mr Sparks said in order to adequately manage conflicts such as these, advisers needed to be extremely detailed in their documentation of research and conversations with the client.
“You need to think of your client file as a story that talks to a disinterested person, so when ASIC pick up that file they want to see from start to end the process you took looking at what the client’s doing, what their needs and objectives are, what you’ve looked at as consideration for them before you’ve recommended a change in product,” he said.
“The file needs to tell that story and if there’s any gaps in the file that’s what would see you come undone under the best interest duty.”
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The corporate regulator said the adviser failed to prioritise his clients’ interests over his own.
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