ASIC action against RI Advice will set new licensee obligations

1 November 2019

The Australian Securities and Investments Commission’s Federal Court action against RI Advice and former financial planner is looming as a test case of the extent to which a licensee can be held responsible for compliance and the actions of an adviser and how quickly it should act.

The Federal Court action has stemmed from a case-study aired during the Royal Commission and ASIC has raised with the court the due diligence entailed in RI Advice’s recruitment of the planner, John Doyle and its adherence to its own pre-vetting of advisers, including Doyle’s inability to complete a financial planning knowledge test or have client files pass pre-vetting without outside assistance.

The matters raised by ASIC in its notice of filing cover a litany of allegations with respect to RI’s handling of Doyle including maintaining him despite him receiving the worst possible rating in an Advice Quality Report and similar failures in successive reports and the issue of termination and suspension notices.

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The filing also noted that RI Advice consistently recorded Doyle as one of its high revenue earners and that he continued to write substantial business even after the issue of the suspension notice.

Importantly for RI Advice, now owned by IOOF, AIS is seeking declarations from the court that the licensee did not take reasonable steps at various times between 1 November, 2013, and 30 June, 2016, to ensure that Doyle complied with key sections of the act.

It is also seeking a finding that RI Advice failed to do all things necessary to ensure that the financial services covered by its license were provided efficiently, honestly and fairly  and that it failed to take reasonable steps to ensure that its representatives complied with the financial services laws.

ASIC is also seeking pecuniary penalties against RI Advice and orders with respect to compliance and remediation.

The ASIC filing said that the primary legal grounds upon which relief was being sought that RI Advice knew, or ought to have known that there was a substantial risk that Doyle was not complying with one or more sections of the act.

It is said that RI Advice “did not take reasonable steps to address that risk. Insofar as RI subject Doyle’s advice to pre-vetting, Doyle regularly bypassed this requirement, as RI knew or ought to have known”.

The ASIC filing also alleges that RI took too long to issue the suspension notice and to terminate Doyle’s authorisation.

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A great example of how "compliance" is used as a sales motivation tool by vertically integrated licensees. Those advisers who sell lots of inhouse product are given compliance immunity. Those that don't are given compliance hell.

Hayne's decision to drown all advisers in overregulation, rather than simply banning vertical integration, was utterly stupid. One wonders if it was due to a "senior moment".

I believe the answer is for ASIC to simply license advisers individually as opposed via a licensee.

I agree. With the new FASEA Code enshrined by law why is there a need for further Licensee overview and Licensee standards.

Jim I have suggested this to many people many times. ASIC could offer a bare bones compliance licence, no marketing, no in house products, just a basic licence. Then we dont need to pay the ASIC levy, PI insurance would be cheaper, no % based dealership fees. Personally I feel this is the way we are going, but it may be after we retire that something is done as there are so many snouts in the dealership trough the dealerships will not let this go easily. At the moment we are really limited in what we can do, its a nightmare changing dealerships, we the advisers put our trust into dealerships and if they stuff up we wear the cost. We are in a really peculiar situation, we own our clients, but we cant operate without many layers of supervision. We are covered by the corporations act, however now have a code of ethics that is more over reaching than the legislation that is relevant to us. We are charged fees by many people , dealerships, TPB, ASIC , AFA, now FASEA will put the hand into our pockets too. We basically only have the right to work if we are paying a dealership, who are many and varied and who's costs and services are also many and varied, and whos costs are not transperant or comparable between dealerships at all. We have no fees for service agreements with our dealerships, the costs are both % based and a flat fee , and can be terminated at anytime by the dealership. Therefore we are at a high risk of losing our livelyhood even though we may have had no issue with our clients. We have no security. We are really hamstrung in this industry.

Agreed. An advisor needs to be able to provide advice free from the influences of their dealer group, product providers and other special interests groups. This will never change unless every advisor is individually licensed directly through ASIC and can come up with their own investment/insurance/lifestyle and cash flow philosophies for their clients. An advisor needs to use his or her own training, education and experience when providing and delivering advice. It is this simple.

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