Millennium3 ejects non-compliant adviser
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Dealer group Millennium3 won a recent court case against one of its former authorised representatives, Avoca Consultants, which it ejected after it failed to meet the group's requirements.
Deacons senior associate, financial and investment services, Stanley Drummond gave a rundown of the Federal Court case in a recent Financial Services Newsletter.
Drummond said the dealer group discovered issues with Avoca Consultants when it inspected a number of client files as part of an audit. The dealer group was concerned about a number of issues with the client files, particularly around a failure to document investment research and the basis for the recommendations.
Millennium3 reviewed an additional six client files a number of months later, Drummond said, finding they still lacked important information, such as fact finders or file notes. Furthermore, the Statements of Advice (SOA) in the files were incomplete, both by industry and Millennium3 standards. For example, the SOAs did not include a reasonable basis for the advice.
Millennium3 reported Avoca Consultants and one if its sub-authorised representatives, a 'Mr Cunningham', to the Australian Securities and Investments Commission, and terminated its contract with Avoca Consultants.
Avoca and Cunningham then commenced proceedings against Millennium3 in the Federal Court, Drummond said, with the authorised representative arguing the contract had been terminated where there had been no material breach of the contract, and no reasonable cause to suspect any material breach.
"They also alleged that Millennium3 had engaged in misleading or deceptive conduct in various ways," Drummond said.
The group wanted a declaration that Millennium3 was not entitled to terminate the agreement, while also seeking damages and costs.
The court found in the dealer group's favour, saying Millennium3 was entitled both to suspend Cunningham's authority and later terminate the authorised representative agreement. The court also rejected the misleading conduct claims.
Drummond said licensees would "find this case reassuring". Drummond said in light of the case, licensees might wish to review their authorised representative agreements "to ensure they contain adequate rights of suspension and termination if the licensee considers a representative's performance is deficient".
The dealer group took further remedial action by examining 165 client files and sending amended SOAs to clients the group believed had been affected by the deficiencies.
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