Mercer Financial Advice hit with $12m penalty
Mercer Financial Advice has been hit with a $12 million penalty after having been found in the Federal Court to have failed in its fee disclosure obligations and charging customers fees it was not entitled to charge.
The Australian Securities and Investments Commission (ASIC) said the penalty imposed on Mercer Financial Advice was significant for a financial advice provider.
“Mercer failed in its obligation to provide fee disclosure statements to clients, provided misleading information in the disclosure statements it did provide, and charged its clients fees for services it was not entitled to charge,” ASIC deputy chair, Sarah Court said.
“These failures occurred in part because Mercer failed to maintain the necessary systems and processes to ensure that the disclosure statements sent to customers were timely and accurate.
“ASIC expects businesses to invest properly in their compliance systems. As today’s outcome shows, if they fail to do so, they face significant penalties,” Court said.
Mercer was found to have breached sections of both the Corporations Act and ASIC Act over a three-year period from 1 July 2016 to 30 June 2019 when it:
- failed to invite more than 800 clients to attend annual review meetings, despite those clients being entitled to attend the meetings,
- failed to provide fee disclosure statements to over 500 clients,
- issued over 3000 non-compliant fee disclosure statements to more than 2000 clients, and
- charged 761 clients a combined total of more than $4.7 million in fees for services clients did not receive.
The Court found that Mercer’s failures were caused by having inadequate systems and processes in place to ensure that its fee disclosure statements complied with financial services laws.
Mercer was also found to have breached its obligation to provide financial services efficiently, honestly and fairly.
And this will be coming off the ASIC levy?
No it won’t. This money will go straight to Consolidated Revenue for the Government to use as they see fit. The bit that will come off the ASIC Funding Levy is the amount of costs that the Court awards to ASIC. This typically happens later. There is rarely any publicity when this happens, and based upon the recent numbers from ASIC, it only makes up around 10% of the costs that ASIC spends on enforcement in the advice space.
The ASIC Funding model allows advisers to fund the cost of court action like this one and some of the previous matters involving the big banks, where the benefit goes straight to the Government (not ASIC). Sounds unfair – is unfair!
Advisers are ASIC’s Litigation Funders.
And you can guarantee that any funds ASIC gets awarded by the courts in legal cost recovery for cases won, are then more than offset from costs awarded against ASIC in a higher proportion of cases lost : – /
A litigation funder is a third party (Advisers) that provides financial resources to a claimant (ASIC) to pursue claims through litigation or
arbitration. The funder (Advisers) pays all legal costs and does not receive any remuneration or
return unless the case is successful, and the claimant (ASIC) achieves a recovery. In exchange for financing some or all of the legal expenses of one or more legal disputes, the litigation funder receives a share of the proceeds recovered from the resolution of the dispute(s) (NOT SO FOR ADVISERS). The calculation of the funder’s (Advisers) share of the proceeds is typically based on a percentage of the sum recovered or a multiple of the funding provided (Advisers share = 0% or 0
multiple). The litigation funder receives only what it is entitled to receive from group members who have entered into funding agreements. Most litigation funding agreements contain provisions requiring the compulsory acquisition of After the Event insurance cover (ATE) that
indemnifies the funder against adverse costs orders if the litigation is unsuccessful . This protects the funder against the risk of paying the other side’s legal costs. (I doubt ASIC get Advisers AET Insurance, as ASIC have nothing to lose either way)
I’m a bit confused as only last week Hesta got fined $48,600 for misleading advertising involving their investment returns.
I appreciate Mercer has multiple issues but seems a $12 million penalty is 246 times greater than Hesta’s fine and doesn’t seem 246 times greater to me.