Panel delivers warning to planners on research
Financial planners have been served with a warning that they should not rely solely on the findings of ratings houses or the explanations provided by product manufacturers and should undertake their own research into the products they choose to recommend.
The warning is contained in a recent finding by a panel of the Financial Industry Complaints Service (FICS) regarding a complaint lodged by a financial planning client who lost a substantial amount of her investment monies in the collapse of a Westpoint-related mezzanine investment vehicle, York Street Mezzanine.
The panel finding, handed down in mid-November, saw a financial planning company ordered to pay the complainant $50,000 on the capital investment by way of compensation, less $9,500 received from the liquidation of York Street Mezzanine Pty Ltd.
However, it was the panel’s findings with respect to the manner in which the planner had utilised research and described the mezzanine investment to his client that poses an important warning to planners.
The panel was particularly scathing of the planner’s reliance on research on the product that was up to three years old and his failure to properly explain the nature of a mezzanine investment and the likelihood of the client losing the totality of her investment.
“The panel is satisfied that investors like the complainant would be likely to assume such an investment was safe, particularly when it is linked to a document such as the York Street Mezzanine Pty Ltd Information Memorandum that uses the expressions ‘security’ and ‘guarantee’ so freely,” the determination said. “This is not the case in fact and this was not explained to the complainant in relation to the rollover investment.
“The panel finds that the complainant suffered a loss that was both foreseeable and caused as a result of the conduct of (the adviser),” the determination said. “The panel is satisfied that if (the adviser) had complied with his statutory and professional obligations, he would have properly advised the complainant of the nature of this investment and the risks involved.”
The determination added that the panel accepted the complainant’s submission that “if the member had offered a full explanation of the nature of the investment, the risks involved and the age of the research upon which the recommendation was based, it would have been apparent to any person (let alone a professional adviser) that these factors rendered the investment not suitable for the needs and objectives of the complainant”.
AUTHOR
Mike Taylor
Recommended for you
With an advice M&A deal taking around six months to enact, two experts have shared their tips on how buyers and sellers can avoid “deal fatigue” and prevent potential deals from collapsing.
Several financial advisers have been shortlisted in the ninth annual Women in Finance Awards 2025, to be held on 14 November.
Digital advice tools are on the rise, but licensees will need to ensure they still meet adviser obligations or potentially risk a class action if clients lose money from a rogue algorithm.
Shaw and Partners has merged with Sydney wealth manager Kennedy Partners Wealth, while Ord Minnett has hired a private wealth adviser from Morgan Stanley.
