Westpoint: dealer groups may take the hit
Financial planning dealer groups may end up being liable for a portion, if not all of the damages awarded to the investors who are in the process of taking legal action against advisers associated with the failed Westpoint Corporation.
Holley Nethercote Commercial Lawyers partner Grant Holley believes investors may decide to sue dealer groups rather than individual planners in order to get a better financial outcome. Even if investors do eventually target individual advisers, Holley feels the advisers themselves can then issue contribution proceedings against the dealer group to which they belong to cover a portion of the awarded damages if the Westpoint funds in question were included on the licensee’s recommended list.
“I think the most likely scenario would be where the consumer would be the plaintiff, the first defendant would be the licensee, the second defendant may be the authorised representative and then there will be a notice of contribution between the authorised representative and the licensee,” he said.
The new legal opinion comes as Money Management learnt one of the dealer groups implicated in the Westpoint collapse was beginning to distance itself from the recommendations of its authorised representatives, despite the fact the Westpoint mezzanine investment offerings were included on its recommended investment list.
Holley feels the success of this strategy would be dependant on the procedural documentation the dealer group kept.
“The licensee has an obligation to take reasonable steps to ensure their authorised representatives comply with the financial services laws, including the reasonable basis of advice requirement. What those reasonable steps amount to is a matter for conjecture, but one would think it would include at least adequate supervision and training and those sorts of things,” he said.
“As long as the licensee can show that it has taken those reasonable steps it will have complied to that extent,” he added.
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