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ASIC, Compliance

ASIC warns advisers on best interest duty

The corporate regulator has used the upholding of a ban on a former Westpac adviser who advised clients on SMSFs as a reminder to financial advisers of the importance of complying with the best interest duty and conducting reasonable investigations to ensure their advice is in the best interests of clients.

The Australian Securities and Investments Commission (ASIC) said advisers should ensure this occurs even when the client suggests the investment strategy to the adviser.

The warning comes after the Administrative Appeals Tribunal (AAT) upheld ASIC‘s decision to ban former Perth financial adviser and Westpac subsidiary Magnitude Group authorised representative Jason Sean Atkins from providing financial services for three years.

Atkins provided advice to clients to establish SMSFs and use limited recourse borrowing arrangements to fund the purchase of real property.

ASIC found he had not acted in the best interest of his clients when providing this advice and did not investigate or consider whether the strategy of investing in property through an SMSF would outperform his clients’ existing super fund and improve their retirement position.

“This banning should serve to remind financial advisers that compliance with the best interest duty requires them to use their expertise to conduct a reasonable investigation into the financial products that may put the client in a better position, even where a client approaches an adviser indicating they are interested in a particular strategy or financial product,” it said.

It added Atkins should have investigated and considered whether the retirement savings strategy suggested by his clients of investing in property through an SMSF would enhance the clients’ ability to meet their retirement goals. This would have allowed the client to then make an informed decision on how they wished to proceed.

Commenting on the tribunal’s decision, AAT senior member Dr Michelle Evans said the clients were left in the risky position of having a single property as the sole asset in their super funds, leaving them financially vulnerable if the market were to drop, if the property did not have tenants or if the clients experienced cash-flow problems, such as in the case of redundancy.

“The detriment and potential loss caused to the clients is potentially very serious. The applicant facilitated a high-risk investment strategy for the clients whereby all of the clients were in a worse financial position than if they had done nothing and not followed his advice,” Evans said.

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