Choosing a financial adviser is an important decision that can have big consequences. If you pick a good one they can help set you up for long-term wealth and peace of mind. If you pick a bad one, you may lose your life savings. We’ve all seen the horror stories, and while they are rare, it pays to be vigilant and identify warning signs that your adviser may not be acting in your interests.
ASIC Financial Advisers’ Register
Fortunately, there are systems in place to help protect consumers. Financial advisers in Australia must either be licensed by the Australian Securities and Investments Commission (ASIC) or be an authorised representative of an Australian Financial services Licence (AFSL) holder (such as a registered company).
ASIC is the regulator of the financial services industry in Australia and maintains a register of advisers who are licensed to provide advice on investments, superannuation and life insurance. You should always check the ASIC register before hiring the services of a financial adviser to ensure they are licensed.
However, an ASIC licence is issued at a point in time and doesn’t guarantee the quality of an adviser’s services. Even if a financial services adviser is licensed, it’s important to be aware of potential warning signs that their services may not be high quality or that they could even be unethical.
ASIC Banned and Disqualified Persons’ Register
ASIC has the power to ban or fine financial advisers based on their conduct. They also maintain a ‘Banned and Disqualified Persons’ register that provides information about people who have been disqualified from practising in the financial services industry.
ASIC publish press releases whenever they ban or disqualify an adviser. These press releases provide an insight into potential warning signs that you should be wary of when dealing with a financial adviser.
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Here are some common warning signs and tips for how to avoid problems when choosing a financial adviser.
Warning sign 1: An adviser not having an AFSL licence
This is the most obvious warning sign.
Warning sign 2: A financial adviser asking you to pay investment money directly into their account
A Victorian financial adviser was recently found guilty of defrauding investors of approximately $815,000 over a three-year period. The adviser arranged for his clients to deposit investment money into the bank account of his financial services business. However, the funds were subsequently used by the adviser for his own personal purposes.
Similarly, a New South Wales’ financial adviser recently pleaded guilty to dishonestly obtaining approximately $208,000 from his clients. He advised them that he would invest money on their behalf if they deposited money into his business account. Instead, he also used the funds for his own purposes.
Both advisers are currently awaiting sentencing and face up to ten years’ imprisonment.
Warning sign 3: An adviser operating under multiple company names
A former Sydney financial adviser was recently banned by ASIC after it was found that he’d operated a financial services business under 14 separate companies. The adviser was a failed director of all of the companies. They had all been placed into liquidation over a 13-month period. The combined debt owed to creditors was $9.8 million.
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The adviser was subsequently banned by ASIC from holding a financial services licence for five years.
Warning sign 4: An adviser not taking the time to understand your needs and explain how their advice is in your best interests
Financial advisers are legally obliged to provide advice that is in the best interests of their clients, rather than in their own best interests. But some don’t. Just in the last 12 months,
- An Adelaide financial adviser was banned by ASIC for five years for consistently failing to address the stated needs and objectives of his clients. His advice included product switching recommendations without disclosing associated costs and consequences. The adviser also failed to provide documented statements of advice to his clients as advisers are legally required to do.
- A Queensland financial adviser was also banned for five years after it was found that he obtained limited information about his client’s personal circumstances and made a series of assumptions instead. He then recommended superannuation and insurance products without considering his clients’ existing products and services. In many cases, the insurance products he recommended were unaffordable for his clients and he also understated the cost of setting up self-managed super funds. Further, he didn’t adequately disclose his fees to his clients.
- A Hobart financial planner was also banned for five years after recommending his clients switch from one insurance product to another. There was no benefit for the clients in the switch, but it did generate commission for the adviser.
- The director of CFS Private Wealth was banned from providing financial services for 25 years and the company was ordered to be wound up after advising clients to transfer over $4.7 million to a related company. These funds were subsequently used for the director’s personal purposes and to pay interest to other clients.
Warning sign 5: An adviser using your funds without your authorisation
Unfortunately, this does happen. Again, just in the last 12 months:
- A New South Wales financial adviser was banned by ASIC for six years for using client funds without their authorisation to buy and sell securities over a period of three years. He was trading in the securities in a personal capacity.
- Another New South Wales adviser who was authorised as a representative by his employer (NAB, an AFSL licence holder) was banned by ASIC for life for withdrawing $166,500 of client funds to use for his own purposes. The adviser is also facing up to ten year’s imprisonment when he appears in court charged with obtaining financial advantage by deception later this year.
- A Perth accountant was banned from providing financial advice for six years for buying shares on behalf of clients without their consent. He did this in order to help two companies meet ASX listing requirements.
- A Victorian financial adviser was banned for life for engaging in dishonest, misleading and deceptive conduct by forging client signatures, using false documents and back-dating documents.
Warning sign 6: A financial adviser or advisory firm advertising investment returns well above market rates
Jade Capital, a Sydney-based investment firm recently had its AFSL licence cancelled by ASIC for advertising misleading returns, fees and costs, performance history and results. Directors associated with the company were also banned.
Warning sign 7: An adviser operating managed investment schemes without appropriate qualifications
Two financial advisers were recently banned by ASIC for managing a foreign exchange and derivatives fund on behalf of client investors without appropriate qualifications and the experience to do so. ASIC banned the advisers from holding a licence for six years.
Warning sign 8: An adviser trading in investments when unauthorised to do so
A Queensland financial adviser was banned by ASIC for six years after representing to clients that he was authorised to trade in shares when that wasn’t the case.
The bottom line
It’s crucial to check the ASIC Financial Adviser register before you choose an investment adviser. It’s also important to look out for potential warning signals on an ongoing basis to ensure that your financial adviser is always acting in your best interests.
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