Leanne McDonald (“Plaintiff”) was a financial adviser and authorised representative of AMP Financial Planning Pty Limited (“AMPFP”). In 2012 she entered into an Authorised Representative Deed of Agreement (“AR Agreement”) with AMPFP. That agreement gave AMPFP a right to immediately terminate the Plaintiff’s employment for breaching material obligations or obligations under the Corporations Act 2001 (Cth) (“Act”).
By 2017 AMPFP had become aware of a number of deficiencies in the Plaintiff’s practices as a financial adviser. Records of advice (“ROA”) were not always prepared when giving clients financial advice, and on other occasions, file notes were inadequate and lacked detail. In particular, the Plaintiff held client meetings where she recommended clients hold on to their existing investments without change (“hold recommendations”) but did not prepare ROAs. The Plaintiff claimed that ROAs were unnecessary because such recommendations did not constitute financial advice. When AMPFP informed the Plaintiff that this was not an appropriate way to record meetings, the Plaintiff went over old files and added notes purporting to be ROAs. This included creating notes for meetings that had occurred years before.
The Plaintiff’s authorisations and employment was immediately terminated in January 2018 on the basis that she breached material obligations under the AR Agreement and the best interests duty under the Act. The Plaintiff subsequently commenced proceedings in the Supreme Court of Queensland arguing that her termination was invalid.
Best interests duty
Financial advisers are under a statutory duty to act in the best interests of their clients, under section 961B of the Act. This includes the obligations to identify:
the client’s objectives, financial situation and needs that are relevant to the advice sought;
the subject matter of the advice sought by the client;
whether the client has provided enough information to offer advice;
whether the adviser has the necessary expertise to provide the advice sought;
whether the recommended financial product meets the client’s objectives, financial situation and needs; and
whether there is any other step, reasonably regarded to be in the best interests of the client, that needs to be taken.
Findings
Justice Douglas agreed with AMPFP that the Plaintiff had breached the AR Agreement and the best interests duty. In particular:
the Plaintiff’s attempts to recreate ROAs for client meetings were ‘unreliable’;
the Plaintiff’s use of templates of pre-prepared responses to record meetings with clients as ‘sloppy’ and was not an appropriate way to manage prepare ROAs;
hold recommendations constitute financial advice and should have been recorded in ROAs prepared at the same time the advice was given;
the Plaintiff’s records included notes of a client meeting that on the ‘balance of probabilities…did not occur’; and
the Plaintiff could not rely on a defence that because she previously complied with internal AMPFP audits, it meant that she was not afoul of the AR Agreement or the requirements under the Act.
As noted by Douglas J, the requirements under section 961B of the Act are not a matter of ‘box-ticking’, but of holistically assessing whether the adviser has reasonably identified the relevant matters to act in the client’s best interests. Specific failures of the Plaintiff to discharge the best interests duty included:
advice to a client to roll over his superannuation even though the new insurance policy would exclude his existing shoulder disabilities;
advice to a client to cancel her existing life insurance policies despite the new policy offering reduced cover;
advice to a client to cancel her existing total and permanent disability insurance and accept replacement insurance which excluded cover for her existing lower back ailments; and
advice to clients to establish a self managed superannuation fund that prematurely exposed them to around six time the fees of their previous fund.
If you have any questions about your authorised representative agreements, or your legal obligations more broadly, please do not hesitate to contact Dr Hillary Ray or a member of our Financial Services team.