Advisers turn on each other
Investors are increasingly seeking legal redress against former advisers based on the recommendations of a new adviser, according to Argyle Partnership principal Peter Bobbin.
He said the law firm is “very busy” assisting new clients who have been referred by their current adviser to seek legal advice about receiving compensation for inappropriate advice given by a former adviser.
In fact, Bobbin said these types of client referrals by advisers now represent the “primary source of litigation in the financial services sector”.
However, he added that it would be “wrong to attribute their increase to the effects of the global financial crisis, although there is no doubt [this is an influence]”.
Instead, Bobbin sees the development as a sign of “increased confidence in financial planners (by consumers) rather than any loss of confidence”.
“My view is that it is as much a reflection of a growing sense of professionalism in the advice sector as it is of anything else. These advisers regard themselves as having a professional duty to highlight to clients if and when they see that another adviser did wrong in the past.”
Most such referrals to Argyle “focus on overall investment strategy, such as margin lending, whereas recently the focus was on investment products, such as Westpoint or Basis Capital”, Bobbin said.
“They’re generally asking us to assess the financial plan they received from their former adviser to see if there are grounds for negligence.”
Alison Maynard, who heads up the investments, life insurance and superannuation division of the Financial Ombudsman Service (FOS), said adviser-driven complaints were a trend but could not say if it was increasing as a result of the financial crisis.
“There have always been a proportion of consumer complaints against advisers brought to the FOS on the recommendation of a subsequent adviser.
“A client will have gone to see another planner for whatever reason and that planner will say the previous advice wasn’t good enough and that they should complain.”
However, Maynard said it’s more likely in general that complaints would be upheld where an adviser assists a new client in bringing a complaint against a previous adviser.
“It’s more likely that these complaints are going to have some substance and that they are not going to be a waste of everybody’s time.
“Instead of just having a consumer who thinks they have a complaint, you’re starting with a complaint on which you have already got a professional opinion,” she said.
Recommended for you
The month of April enjoyed four back-to-back weeks of growth in financial adviser numbers, with this past week seeing a net rise of five.
ASIC has permanently banned a former Perth adviser after he made “materially misleading” statements to induce investors.
The Financial Services and Credit Panel has made a written order to a relevant provider after it gave advice regarding non-concessional contributions.
With the election taking place on Saturday (3 May), Adviser Ratings examines how the two major parties could shape the advice industry in the future.
