Approved product list no defence

Advisers cannot rely on the defence of an approved list if they are being accused of inappropriate advice, a compliance expert warns.

“Advisers still have to do their own due diligence when recommending a product from an approved list,” Alexis Compliance Solutions principal Christina Kalantzis said.

“[Financial Services Reform] says the dealer group has to provide the systems but there is some responsibility for the adviser to do some due diligence on the approved products.”

In a recent Financial Industry Complaints Service (FICS) judgement on a case where an authorised representative of a Westpoint company recommended members of a superannuation fund invest in the company’s products, it was noted the adviser hadn’t researched the product or its suitability for the clients.

“[The adviser] should have properly researched this investment before giving the advice that was given about this investment (a Westpoint mezzanine fund) generally before any issue arose as to its suitability for the complainants,” the FICS judgement said.

“The complainants would then have been given the chance to make an informed choice about the suitability of this investment or another.”

Kalantzis told the Association of Financial Advisers Conference in Melbourne that advisers have an obligation to consider the subject matter of the advice and the Australian Securities and Investments Commission (ASIC) reinforces this view.

“Advisers need to investigate the information supplied by external research houses on the products on an approved list,” she said.

“There is an obligation by the adviser to check the information is up-to-date and accurate.”

Research houses have attracted the attention of Treasury and Kalantzis expects there to be additional legislation controlling them when the Government hands down its report on the subject later this year. She said advisers claiming the dealer group has done all the checking of the information would receive a bigger ban if they appeared before ASIC. Using an approved list on a platform still doesn’t absolve the adviser from checking the information on the product, Kalantzis said.

“The [Australian Financial Services Licence] says there needs to be appropriate research on the products being recommended and the platform research doesn’t absolve the adviser,” she said.

According to FICS figures for this year (till the end of September), there were 239 complaints about financial planning of which 138 were for inappropriate advice. Kalantzis said consumers have become more aware of what is good and bad advice and they now know how to word their complaints to FICS.

“Complaints have been growing since Basis Capital, Westpoint and the shaky markets, so consumers now know that there is an insurer to pay for any compensation,” she said.