Spotting adviser red flags to prevent possible misconduct
With financial advisers being urged to report instances of misconduct, Assured Support has broken down the red flags to be aware of in your own business.
Shail Singh, lead ombudsman for investments and advice at the Australian Financial Complaints Authority (AFCA), recently urged the advice industry to report misconduct, such as inappropriate cold calling, if they are aware of it occurring.
“I think it’s incumbent actually on associations and advisers, under standard 12, if they find out about this sort of conduct, that they report it,” he said at a member forum session, quoting the Code of Ethics.
“Ultimately, the advice profession, which is attempting and wants to self-regulate, needs to be really trying hard to do what it can when it hears about these things. I know from the fact that I’ve gone and spoken to lots of advisers, they know a lot of this stuff before anyone else does.”
With adviser misconduct often foreshadowed by early warning signs, AFSL consultancy Assured Support has detailed 10 red flags to be mindful of to prevent potential wrongdoing.
“The regulatory landscape is unforgiving; adviser misconduct can lead to significant enforcement actions against individuals and licensees, including banning orders, licence revocations, substantial financial penalties, and criminal proceedings in extreme cases,” explained Sean Graham, managing director at Assured Support.
“By recognising these patterns early, you can implement targeted supervision strategies, protecting your advisers, your licence, and, ultimately, the clients who rely on your vigilance.”
Namely, these are:
- Deviations from approved advice processes.
- Inconsistent record keeping or missing files.
- High levels of client complaints.
- Failure to complete CPD.
- Resistance to audits.
- Sudden spikes in revenue or production.
- Unusual client demographics.
- Frequent changes to records.
- Overuse of disclaimers.
- Job hopping.
Unpacking the first red flag, Graham noted that advisers are generally expected to follow their licensee’s approved advice process. This includes conducting thorough fact finds, using approved product lists (ALPs), and complying with best interest duty.
“Repeated unapproved deviations – such as skipping required steps or recommending products outside the approved list – are serious red flags. These behaviours suggest an adviser circumvents compliance controls, often to the detriment of clients,” the managed director said.
An adviser with disorganised, incomplete or frequently missing documents and files can also indicate potential negligence or misconduct, Graham highlighted, making it easier to hide wrongdoing.
Similarly, if an adviser is resisting or obstructing audits and investigations, this may be a clear warning sign.
“Pushback against compliance oversight – such as delaying file submissions, providing partial information, or refusing to cooperate – often precedes uncovering misconduct.”
Graham also underscored abrupt spikes in an adviser’s revenue as something to be aware of. While business growth is typically a good sign, unexplained jumps in revenue – particularly if it diverges from peers and market trends – could signal high-risk behaviour and requires closer examination.
“Essentially, if it looks too good to be true, it probably deserves scrutiny.”
One of the clearest red flags is examples of past misconduct, Assured Support continued, such as regulatory sanctions, complaints, or a pattern of frequent job hopping.
“This is the classic ‘bad apple’ problem – such individuals often continue their problematic behaviour if not properly managed or removed from the industry. Both data and regulators’ experience show that advisers with a checkered past are more likely to transgress again, making this an essential warning sign,” it concluded.
AUTHOR
Jasmine Siljic
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