FSCP puts SOA mistakes in the spotlight

The Financial Services and Credit Panel (FSCP) has released its latest complaint after a relevant provider used inaccurate retirement projections in a statement of advice (SOA) to induce a client to switch superannuation funds.

The relevant provider recommended a client, who had been cold-called, switch from their existing super fund to another even though they had failed to assess their circumstances. 

The SOA produced recommended a high growth investment portfolio in the super fund even though the client had a growth risk profile. They failed to consider the client’s insurance needs or give them insurance advice even though they were encouraging a switch  from a fund where they held life, TPD, and income protection insurance. 

The panel described the SOA as having “no basis in fact” and implied it had been produced quickly.

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“The SOA also contained retirement projections which had no basis in fact, and which the Sitting Panel is satisfied were used to induce the client into accepting the relevant provider’s recommendation.

“The Sitting Panel’s findings include that the SOA was presented to the client on the day after the fact find was completed, and on the same day that the client completed a risk profile questionnaire, demonstrating that the relevant provider could not have properly enquired about or considered the client’s needs and objectives.”

The Sitting Panel determined the relevant provider had contravened s961B(1), s961G, s1041E(1) and s921E(3) of the Corporations Act 2001 covering best interest obligations and the requirement to not make false or misleading statements.

As well as this, the adviser failed to demonstrate the Code of Ethics’ values of trustworthiness, competence, honesty, fairness and diligence, and breached Standards 2, 5 and 9 of the Code.

As a consequence, the Sitting Panel recommended the relevant provider receive specified supervision and engage an independent person with financial services law compliance experience within 30 days to pre-vet the next 10 SOAs the relevant provider intends to present.

It was also recommended for the independent person to select and audit 10 SOAs that the adviser had presented between 1 February 2023 and 30 April 2023. The adviser would then be required to provide their findings to ASIC and bear the cost of the independent person’s work.

Commenting on the decision, Michael Miller, director at Capital Advisory, said: “The conduct in question looks like what has become unfortunately more common –- a third party marketing agency is employed to secure leads for superannuation advice, and then highly templated and scoped advice is provided very quickly to a consumer, of dubious quality.

“What’s particularly interesting about this decision is considering the impact of the sanction. The description of the advice and the decision suggests that the poor advice was likely the entire business model of the practice, rather than a once-off oversight.

“If it turns out that the poor advice was not a once-off mistake, but rather a function of a business model that is not conducive to advice in the best interests of clients, the report from the independent consultant may trigger further ASIC investigations and actions.”

The FSCP commenced operations last year as part of the Financial Sector Reform (Hayne Royal Commission Response – Better Advice) Act 2021 and fell within ASIC as the single disciplinary body for financial advisers from 1 January 2022.

The difference between complaints referred to the FSCP and those referred to the Australian Financial Complaints Authority (AFCA) is that those dealt with by the latter relate to consumers who have suffered financial losses, while the FSCP deals with misconduct.

There are varying levels of action the FSCP can take, depending on the severity of the case, ranging from warnings/reprimands, directions to undertake training or counselling, suspending an adviser’s registration, infringement notices, issuing civil penalty proceedings, and enforceable undertakings.

Its first action came at the start of June when a relevant provider impersonated a client during telephone conversations with a bank to facilitate a transaction. 

Although the adviser did not obtain any benefit from the transaction, the sitting panel determined the adviser had contravened the Corporations Act 2001.

As a result, the body directed the relevant provider to provide a copy of three successive compliance audits undertaken by their licensee in relation to personal advice they had given to retail clients, with a minimum of 12 months between each successive audit, commencing in 2023, within 30 days of 30 June of the relevant year.