FSCP clamps down on poor recordkeeping
Proper recordkeeping has been described as the “mortar between the bricks” of the advice process as the Financial Services and Credit Panel (FSCP) suspends a financial adviser for failures in this area.
Last week, the panel issued a written order suspending adviser Ian James Reid as a relevant provider for three months as it was concerned he had contravened the Corporations Act.
According to the FSCP, Reid failed to comply with his obligations when providing advice to three clients, using records of advice (ROA) that relied on statements of advice (SOA) that had been given to the clients up to seven years ago.
“The FSCP was reasonably satisfied that the further advice exemption from giving an SOA in regulation 7.7.10AE of the Corporations Regulations 2001 did not apply to two of the three clients because there had been changes in those clients’ relevant personal circumstances which were significantly different from that in relation to the previous advice,” it said.
In particular, the panel noted there was insufficient evidence on the client files that reasonable enquiries were made about the client’s relevant circumstances. The results of those enquiries were taken into consideration and advice scoped appropriately, that the client’s strategic advice needs were taken into consideration, demonstrating why the previous recommendations in the SOA remained appropriate, and the relevant provider based all judgements in advising the client on that client’s relevant circumstances.
“Ultimately, recordkeeping on all three client files was poor. Details of advice processes, if undertaken, could not be substantiated.”
In two previous cases in December 2023, one registration was cancelled and the other was prohibited by the FSCP. There have also been multiple cases regarding the use of ROA, including one in August 2024 which received a warning.
Discussing the verdict, Joel Ronchi of compliance firm Fourth Line told Money Management: “We don’t get enough info from the FSCP to know why this is a stricter sanction – the most common, typically, have been pre-vetting of 10 client files – or why it is only for three months. The FSCP has a range of tools available to them including the option to not to do anything.”
Regarding the adviser’s use of an ROA, he said it is rare for advisers to deliberately take this approach. Under ASIC rules, there are three circumstances when an ROA should be used: when there is further advice, when there is no buy or sell product advice, or for small investment advice regarding assets less than $15,000.
When giving further advice, they should also give a statement of advice if a client’s circumstances change, such as with a new baby, a new mortgage, redundancy or inheritance.
Ronchi said: “We do a lot of ROA reviews at Fourth Line and in some, we do pick up that the clients’ circumstances have changed significantly and they should have a statement of advice instead. We find it’s usually that the adviser didn’t necessarily view it as a significant change or pick it up. It is usually that they weren’t aware of it rather than they are deliberately avoiding it.
“Recordkeeping and detailed file notes is absolutely paramount. It’s the mortar between the bricks, and if any issues come up, then it does usually come down to having a lack of evidence.”
AUTHOR
Laura Dew
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