Caveat emptor necessary amid planner churn
With scores of financial planners changing dealer groups, Mike Taylor writes that it is important for those doing the recruiting to undertake the necessary due diligence to ensure they know precisely who and what they are getting.
When the Australian Securities and Investments Commission (ASIC) earlier this month wrote to the authorised representatives of AAA Financial Intelligence informing them of their obligations with respect to professional indemnity insurance (PI), it should have rung alarm bells across a broad cross-section of the planning industry.
The ASIC letter to the authorised representatives stated:
“It is imperative that you obtain confirmation from AAA that it remains a member of an external dispute resolution scheme and also has in place an adequate and responsive professional indemnity insurance policy, if you provide, or intend to provide financial services up until 28 February, 2013. If you are not able to obtain confirmation from AAA that these arrangements are in place, you must not provide financial services to retail clients”.
This admonition contained in the ASIC letter represented standard operating procedure for the regulator in terms of dealing with a dealer group in the sort of trouble being experienced by AAA, but it will nonetheless have acted as a reminder to a number of the large institutions currently looking to recruit planners from groups such as AAA, AFS Group and elsewhere.
The bottom line for those companies picking up planners from other groups is that they are also picking up an exposure to any of the liabilities, regulatory or otherwise, that those planners may be carrying.
As it happens, Suncorp-backed dealer group Guardian Advice has offered a home for a number of the AAA advisers and this would seem somewhat apposite in circumstances where, according to Money Management’s most recent Top 100 Dealer Groups survey, Suncorp-backed Vero was registered as the PI provider to AAA.
Guardian Advice has no doubt undertaken due diligence with respect to the AAA advisers it has approached, but it is worth noting the strong language used by ASIC deputy chairman, Peter Kell, in describing the regulator’s approach to the dealer group.
Kelly described the AAA licensee as having had an “appalling record” which placed at risk the advice provided to retail clients.
In cancelling AAA’s licence, ASIC claimed the dealer group had failed to put proper compliance and human resources systems in place, and failed to properly train its advisers.
So the question for Suncorp and for Guardian Advice is whether any of the planners they have recruited from AAA will be taking with them legacy issues and liabilities.
Similar questions are likely to confront the likes of BT Financial Group in terms of the planners it has recruited.
The Financial Planning Association (FPA) has pointed to another issue with respect to planners working under the AAA banner – whether some people described as being Certified Financial Planners were actually entitled to use the designation.
The FPA has signaled that it is investigating the matter.
Given Kell’s use of the term “appalling conduct” with respect to AAA, the regulator probably owes it to consumers to define whether any problems exist with respect to particular planners within the group to alleviate any concerns around the question of “bad apples”.
This should be as helpful to the AAA planners in terms of their transition to new licensees as it is to consumers and the broader industry.
While the regulator may have had issues with the licensee at AAA, these concerns should not be allowed to unnecessarily taint the reputations of individual planners as they seek to continue their careers within new organisations.
Given the amount of recruitment which has been undertaken by the major institutions, it is to be hoped that they have done their due diligence and are satisfied that they are not going to be exposing themselves to legacy professional indemnity issues.
The reality is that the Australian financial planning industry is currently undergoing one of its greatest-ever transitions with scores of planners changing brands. It may take up to half a decade before the full implications and any unintended consequences are known.
AUTHOR
Staff Writer
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