Licensees face stronger obligations to notify clients of bad advice

10 February 2020

Financial planning licensees will be under a specific obligation to notify clients of suspected misconduct by financial advisers when it actually comes to their attention.

That is one of the key changes to the Corporations Act being pursued by the Federal Government in response to the Hayne Royal Commission and contained in exposure draft legislation released by the Treasurer, Josh Frydenberg.

It makes clear that when a licensee detects misconduct, it is required to inform potentially affected clients within 30 days and to investigate the nature and full extent of any misconduct within a reasonable amount of time.

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As well, once an investigation is complete, the licensee will need to inform affected clients within 10 days of the full extent of the misconduct and remediate them for their loss within 30 days.

Importantly, if licensees fail to live up to these obligations then they will leave themselves open to not just civil penalties but also criminal penalties.

The explanatory documentation accompanying the proposed new legislation makes clear that licensees need to act where “there are reasonable ground for the licensee to believe that a reportable situation has arisen and either that reportable situation amounts to a significant breach of a core obligation, or it amounts to gross negligence, serious fraud and other circumstances prescribed by the regulations.

It said the person that had to be notified was the affected client and such notification allowed clients to consider their rights and the ways they could mitigate potential loss or damage.

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Just another nail in the coffin for a self-licensed adviser.

You do wonder - all of the individual licenses that ASIC have issued in the past 12-18 months - and now they are required to report their own poor advice??!! How does that happen! Conflict? Is having your own license now a conflict and not allowed under FASEA therefore? - what a debacle this all is.

Bozo, I have over forty years industry experience, starting as a life insurance Agent. All that time we have bleated about wanting to be a profession, whether that be as members of the LUA (Life Underwriters Association), AFA or FPA. With that comes responsibilities and self reporting is one of those,as is the reporting of bad advice or actions by other advisers.

A profession, especially one that looks after people's futures and monies, needs honest people. There will always be bad apples in any barrel. But they need weeding out. If they are self-licensed, of course they need to self-report. If they haven't and get caught, they deserve mush more serious punishments. Other professions have been self-reporting for years. mostself-reports are minor, but it is the honesty of reporting that counts. We all mistakes and we need to be honest about that.

More often than not I agree with you on this forum, but having your own AFSL doesn't mean you above the law or your Code of Ethics.

What I find most weird about the FASEA code is that none of us were ever asked to either swear it as an Oath, or put a signature to it.

So yes, it's a debacle.

Yes fair enough. I've done some advocacy work for victims of poor advice with lawyers and nearly all were from small self licensed practices. I think the complaints to AFCA and its predecessor may support that with a stat. But that is generalising I accept. Interestingly a lot of the smaller advisers, including myself, it is easy to get into a bubble of your own thought and then you have biases to manage, sometimes ones you don't even know exist. To be self reflective and to self report, particularly major issues, when you look at what comes through the courts, is very difficult to do in my experience.

Is it just me or has the following happened since the RC. The RC made recommendations basically based on the fee for no service issues that were the domain of the big banks and large operators. The big banks say stuff it, we will pay out the clients, sack the advisers and then exit advice. The government pushes on anyway with these changes , even though the banks are no longer in advice. So the whole advice landscape has already changed, but no lets go in for the kill anyway. The rest of us get absolutely slaughtered especially us small operators as the recommendations would have assumed the banks have a lot of money to implement all this stuff. Such as annual opt in, 100 page file notes asking who their first cousin is (first removed) and if the advice would effect them 40 years down the track, and following on from that need to now provide a 200 page soa for a switch for example. . So they have legislated for participants that have just up and left the industry. Surely someone has mentioned this to the government. I've put this into my submission to treasury, I hope everyone else does too.

Yes and when the playing field is decimated and all the little mice gone, the banks will step back in magnanimously to fill the void.

It's not just you. The government, and in particular Frydenberg, has decided to persecute all financial advisers as a way to appease the trash media and distract from the government's failings. The government doesn't seem to care that they are not only harming the majority of honest advisers, but also many consumers in the process.

By all accounts Liberal members are refusing to listen to representations from their adviser constituents. When advisers are forced to raise prices and/or abandon clients due to the impacts of expensive and complicated regulation, they should send them straight to their local member to complain. The government needs to hear directly from the thousands of consumers they are harming.

Its all happened, and more. ASIC (that's a GOVT organisation, so for ASIC read THE GOVT) has treated us little operators with absolute disdain, totally unconscionably and without any consideration at all for the poor little people we've been advising faithfully and well all these years. Good luck with getting the Govt to hear you. My local member won't respond to my emails. Oh, yes, maybe that's because he's the Treasurer! Thanks for crucifying me Josh.

Why would I issue advice if I knew it was bad? More rubbish legislation pumped out by people who have never seen a financial advisor let alone managed an investment portfolio.

Betting the industry super AFSL's don't abide by this new requirement, but are never investigated by ASIC.

Especially not their chums in Australian Super that they all got 20,000 Qantas FF points when switching across from their much better Fed Gov super scheme (with no SOA's or studies into individual member impact) plus who knows what other incentives at the ASIC management level now that they no longer publicly disclose these payments and kickbacks.

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