FSCP delivers adviser least serious penalty

In a further indicator of its future approach, the Financial Services and Credit Panel has used its fourth decision to deliver what amounts to its least serious option – a written reprimand against a financial adviser.

Analysing the decision, Capital Advisory director, Michael Miller pointed out that it would not be published on the Financial Adviser Register (FAR) but would, instead, be provided to the adviser’s licensees.

“It’s somewhat along the lines of saying ‘You didn’t get this right, do better next time’ and likely implies that the impact for the client was very low or non-existent,” Miller said.

He said the decision suffered from a lack of detail but that it had revealed:

• The adviser provided a Statement of Advice that recommended a full rollover of superannuation, and a transfer of life & TPD insurances under takeover terms offered by the new superannuation fund (ie, no underwriting required)
• The adviser subsequently discovered that a full transfer of the existing insurance benefits was not available without underwriting, only a partial transfer.
• The adviser provided a Record of Advice that updated the advice to apportion their existing insurance cover across what could be obtained in the new fund without underwriting, and a portion of the existing cover to be retained.
• The panel considered that the advice in the Record of Advice was insufficient to properly revisit the advice in light of the inability to fully replace the insurance cover without underwriting.
• Throughout the entire process, there was no insurance needs analysis completed, and the existing insurance was not properly considered. The insurance was only dealt with in terms of rolling over the superannuation.
• The advice was inappropriately scoped to superannuation only when the client was seeking retirement planning advice also.

The panel found that this was not consistent with the best interests of the client under both the Corporations Act 2001 definitions, and those found in standards 2 & 5 of the Code of Ethics.

“The lack of detail means that there is a large degree of assumption and reading between the lines, but some of the lessons that can be taken from this are similar from that of the FSCP’s third decision on the topic of layered advice, which had more substantial actions applied:

1. You can scope advice;
2. The decision to scope advice must be made with the interests of the client in mind, not the adviser’s business strategy;
3. An adviser must consider the risks of what is excluded from that advice, which may include that excluding an area would be inappropriate; and
4. The presence of group risk insurance with automatic acceptance means a client’s superannuation and insurance needs are often closely linked, and trying to address one without the other is high risk scoping/scaling of advice.