Anderson and Australian Securities and Investments Commission
[2023] AATA 3771
•17 November 2023
Anderson and Australian Securities and Investments Commission [2023] AATA 3771 (17 November 2023)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2021/5258
Re:Pamela Anderson
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President I Molloy
Date:17 November 2023
Place:Melbourne
The decision under review is affirmed.
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Deputy President I Molloy
CATCHWORDS
TAXATION AND COMMERCIAL – Australian Securities and Investments Commission – financial services provider – banning order under s 920A of the Corporations Act 2001 (Cth) – whether power to impose a banning order enlivened – whether banning order should be imposed in the applicant’s case – whether other sanction is more appropriate – period of banning order – decision under review affirmed
LEGISLATION
Corporations Act 2001 (Cth)
Administrative Appeals Tribunal Act 1975 (Cth)
Australian Securities and Investments Commission Act 2001 (Cth)
CASES
Australian Securities and Investments Commission v Donald (2003) 136 FCR 7
Australian Securities and Investments Commission v McCormack [2017] FCA 672; 160 ALD 155
Bowker and Australian Securities and Investments Commission [2020] AATA 573
HIH Insurance Ltd (in prov liq); v Adler [2002] NSWSC 483
Panganiban v Australian Securities and Investments Commission (2016) 338 ALR 119
Rich v Australian Securities and Investments Commission (2004) 220 CLR 129Tarrant v Australian Securities and Investments Commission (2015) 317 ALR 328
SECONDARY MATERIALS
Regulatory Guide 98: ASIC’s powers to suspend, cancel and vary AFS licences and make banning orders
REASONS FOR DECISION
Deputy President I Molloy
17 November 2023
Introduction
This is a review of a decision of a delegate of the respondent (ASIC) dated 2 August 2021 to make a banning order against the applicant under ss 920A and 920B of the Corporations Act 2001 (Cth) (the Act) prohibiting the applicant from:
(a)providing any financial services for a period of two years; and
(b)performing, from 30 August 2021 until expiry of the period for which the applicant is prohibited from providing any financial services, the following specified functions involved in the carrying on of a financial services business (including as an officer, manager, employee, contractor or in some other capacity):
(i)managing, supervising or auditing the provision of financial services; and
(ii)the provision of training about financial services or financial products
(the reviewable decision).
On 17 February 2022, the Tribunal granted a stay of the reviewable decision under s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) until the review has concluded or until further order on condition that the applicant:
(a)undertakes that she will not provide any financial advice to any new client pending the outcome of the review;
(b)undertakes that any financial advice she provides to existing clients pending the outcome of the review will be pre-vetted by a person with requisite qualifications and experience who is nominated by the holder of the relevant Australian Financial Services licence;
(c)writes to each existing client to whom she has provided or will provide financial advice disclosing the fact of the regulatory action against her (including the application for review and the conditions attaching to the stay order) in a form approved by the respondent before the stay commences
(the stay order).
The stay order became operative on 11 July 2022.[1]
[1] Applicant’s affidavit dated 22 July 2022 (Second PMA Affidavit, Exhibit E), [109]; Exhibit PMA-2, pages 112-118, Financial advisers register extract.
Issues
The issues are:
(a)whether the power to make a banning order under s 920A of the Act is enlivened;
(b)whether a banning order ought to be made against the applicant pursuant to s 920A of the Act;
(c)whether some other sanction including a written undertaking by the applicant pursuant to s 93AA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) is more appropriate;
(d)if a banning order is made, for what period should the applicant be banned.
Parties’ contentions
On behalf of the applicant it was submitted, in summary, that although the power to make a banning order was enlivened, the decision to make such an order results in an outcome that is disproportionate, unduly harsh (being punitive, rather than protective), not in accordance with the statutory scheme, and unnecessary in order to promote the objects of the financial services regime as set out in s 760A of the Act and s 1 of the ASIC Act.[2]
[2] Applicant’s Further Amended Statement of Issues, Facts and Contentions dated 7 July 2023 (Applicant’s SIFC) [7].
The applicant contended that, pursuant to s 43(1) of the AAT Act:
(a)the reviewable decision to make a banning order should be set aside; or
(b)alternatively, the reviewable decision should be set aside, and in substitution the respondent should accept a written undertaking given by the applicant under s 93AA of the ASIC Act in terms proposed by the applicant, or in such other terms as the Tribunal considers appropriate, and remit the matter to the respondent with a direction that it enter into the undertaking accordingly; or
(c)alternatively, the reviewable decision be varied by reducing the term of the banning order to the period to which the applicant has already been banned prior to the stay order taking effect.
On behalf of ASIC it was contended that:
(a)as found by the delegate, the power to make a banning order with respect to the applicant is enlivened because s 920A(1)(da), (e) and (f) of the Act are satisfied. That is:
(i)there is reason to believe that the applicant is not adequately trained, or is not competent, to provide one or more financial services, or perform one or more functions as an officer of an entity that carries on a financial services business;
(ii)the applicant has not complied with a financial services law (namely ss 961B, 961G, 961J and 947D of the Act); and
(iii)there is reason to believe that the applicant is likely to contravene a financial services law in the future;
(b)the Tribunal ought exercise its discretion to impose a ban on the applicant providing financial services or performing any function involved in the carrying on of a financial services business (including as an officer, manager, employee, contractor or in some other capacity);
(c)the alternative of an enforceable undertaking would be unacceptably lenient especially having regard to the nature and seriousness of the applicant’s non-compliance, and considerations of specific and general deterrence; and
(d)the period of the ban should be not less than 4 years, taking into account the concerns raised before, and agreed with by, the delegate, and the further material lodged with the Tribunal.[3]
[3] ASIC’s Amended Statement of Issues, Facts and Contentions dated 7 September 2023 (ASIC’s SIFC), [4].
This review is a hearing anew and, as the parties agree, is not limited by the facts and circumstances considered by the delegate or as they existed at the time of the reviewable decision.
The applicant “acknowledges that based on all of the relevant facts and circumstances, the respondent’s power to make a banning order against her pursuant to s 920A of the Act was likely enlivened.”[4] As I understand the applicant’s submissions, as clarified during the hearing, she does not dispute that the provisions relied on by ASIC as enlivening the discretion, and as found by the delegate, were satisfied at the time of the reviewable decision.
[4] Applicant’s Outline of Submissions dated 7 July 2023 (Applicant’s Submissions), [32].
At this time, however, and for the purposes of my decision, the applicant acknowledges only that she failed to comply with a financial services law, contrary to s 920A(1)(e) of the Act. She disputes that the other provisions, s 920A(1)(da) and (f), are currently satisfied. It is sufficient, as the applicant acknowledges, that just one of the prerequisites in s 920A(1) of the Act is satisfied so as to enliven the discretion.
Material
In support of her application, the applicant relied on the Applicant’s SIFC, her affidavits sworn 21 September 2021 (First PMA Affidavit, Exhibit D), 22 July 2022 (Second PMA Affidavit, Exhibit E), 7 February 2023 (Third PMA Affidavit, Exhibit F) and 5 July 2023 (Fourth PMA Affidavit, Exhibit G) and on the affidavit of Mr Jonathan Thomas sworn 22 July 2022 (Jonathan Thomas Affidavit, Exhibit H). The applicant was also cross-examined.
In support of its contentions, ASIC relied on ASIC’s SFIC, the T Documents lodged on 15 September 2021 (Exhibit A), Supplementary T Documents lodged on 28 September 2022 (Exhibit B); Further Supplementary T Documents lodged on 8 September 2023 (Exhibit C), and the written and oral evidence of the applicant.
Background
The background to the reviewable decision is set out at paragraphs [1] to [15] in the Statement of Reasons of the delegate dated 2 August 2021 (Reasons).[5] The applicant did not contest the factual background, or the delegate’s ultimate findings as at the time of the reviewable decision. She did, however, provide further detail and context to both.
[5] Exhibit A (T Documents), T2.
I accept the background as set out in the delegate’s Reasons and the other facts as summarised in ASIC’s submissions[6] and ASIC’s SIFC[7] as follows.
[6] ASIC Outline of Submissions dated 7 September 2023 (ASIC Submissions), [8]-[18].
[7] ASIC’s SIFC, [19]-[23].
The applicant was an authorised representative of financial services licensees:
(a)The FinancialLink Group Pty Ltd (ACN 055 622 967) (FinancialLink) from 1 July 2013 until 20 September 2013 and 3 March 2016 to 11 September 2018; and
(b)Ballast Financial Management Pty Ltd (ACN 086 601 041) from 5 November 2018.[8]
[8] T Documents, T3.1.
FinancialLink is a related entity of Linchpin Capital Group Ltd (ACN 163 992 961) (Linchpin) and Beacon Financial Group Pty Ltd (ACN 162 734 152) (Beacon). Other entities within the Linchpin group of companies include Endeavour Securities (Australia) Limited (ACN 079 988 819) (Endeavour) and Investport Pty Ltd (ACN 160 710 190) (Investport). During the relevant period, the applicant was authorised under the Australian financial services (AFS) licence held by FinancialLink.
Linchpin was the trustee of the Investport Income Opportunity Fund ARSN 121 875 009 (the IIOF), a managed investment scheme. The IIOF was operated by Endeavour. The IIOF substantially gave rise to ASIC’s concerns in the relevant period. Endeavour, Linchpin and FinancialLink, companies in the Linchpin group, are said to have had common directors in Mr Peter Daly and Mr Paul Nielsen.[9] I am not sure that this is strictly correct but I accept they did have substantial control.
[9] Applicant’s Submissions, [20], citing Second PMA Affidavit [54(g)].
The applicant has given evidence of her personal and professional relationship with Mr Daly, and the extent to which she relied on information given to her, and representations made, by Mr Daly in the course of her authorisation under the AFS licence held by FinancialLink[10].
[10] Second PMA Affidavit [37]-[42].
She had a long-standing familial association with Mr Daly. The applicant had also worked with Mr Daly for seven years from 2005 until 2012. She trusted him, and the advice he gave, including when she was financial adviser with FinancialLink.
The applicant provided personal advice to retail clients through her practice Anderson Lutgens & Co Pty Ltd (ACN 610 948 297) t/as Beyond iWealth (Beyond iWealth). In particular, between May 2016 and October 2017 (the relevant period), the applicant recommended to some of her clients that they should invest in the IIOF.
Over a period commencing in October 2016, the applicant and Beyond iWealth borrowed funds from the scheme. The initial borrowing was approximately $60,000, and then an additional $20,000 and $30,000 were borrowed. The applicant also personally invested $50,000 in the IIOF.[11]
[11] T Documents, T2 (Reasons), [5]-[6].
Delegate’s decision
The ASIC delegate found, as referred to above, that the discretion to make a banning order was enlivened in that the applicant had not complied with financial services laws, namely ss 961B, 961G, 961J, and 947D of the Act; there was reason to believe the applicant was not adequately trained or was not competent; and there was reason to believe that the applicant was likely to contravene her obligations under financial law in the future.
ASIC alleged and the delegate found, that the applicant was not adequately trained or was not competent under s 920A(1)(da) of the Act as she:
(a)equated an investment in the IIOF with a term deposit;[12]
(b)failed to exercise the requisite professional judgment in relation to the IIOF, and instead relied on the opinions of the directors of FinancialLink when she recommended that clients invest in the fund;[13]
(c)failed to record aspects of conversations that were material to the interests of her clients;[14] and
(d)failed independently to consider the risk of an investment in the IIOF, undermining the advice process and the applicant’s ability to conduct a reasonable investigation that met her clients’ needs and objectives and provide appropriate advice to her clients.[15]
[12] Reasons, [22]-[25].
[13] Reasons, [30]-[32], [34].
[14] Reasons, [34].
[15] Reasons, [34].
ASIC alleged, and the ASIC delegate found, that the applicant failed to comply with financial services law under s 920A(1)(e), as the applicant:
(a)failed to act in the best interests of certain clients by not taking into consideration the clients’ preferences for ethical investments by advising them to invest in the IIOF (s 961B(1));[16]
(b)failed to provide appropriate advice to clients by advising clients to invest in the IIOF notwithstanding their preference to invest ethically and, as per the risk profile of at least one client, Mrs D[17], as an inexperienced investor (s 961G);[18]
(c)failed to prioritise the clients’ interests and advised them to invest in the IIOF where the applicant knew, or ought to have known, that there was a conflict between the interests of the clients and her interests as a borrower from the IIOF, or the interests of her licensee FinancialLink and its associates (s 961J);[19]
(d)gave non-compliant statements of advice (SOA) to clients (s 947D) and failed to provide additional disclosure regarding costs and benefits lost as a result of switching from one product to another.[20]
[16] Reasons, [41], [44]-[49].
[17] The names of clients have been anonymised pursuant to a consent order.
[18] Reasons, [51]-[55].
[19] Reasons, [62]-[67].
[20] Reasons, [68]-[71].
Finally, ASIC alleged, and the ASIC delegate found, that by reason of an ongoing lack of understanding of key aspects of the role of a financial adviser, including recognising conflicts of interest and her obligation to assess product risk, there was reason to believe that the applicant was likely to contravene a financial services law under s 920A(1)(f).[21]
[21] Reasons, [77]-[78].
Applicant’s conduct
As I have said, the applicant did not dispute, and indeed accepted, that she had failed to comply with financial services laws as found by the delegate.
The undisputed conduct that led to the reviewable decision that there was non-compliance with ss 961B, 961G, 961J and 947D of the Act is set out in the delegate’s Reasons and summarized in ASIC’s SIFC.
ASIC had raised concerns regarding four retail client groups:[22]
(a)Mr and Mrs D;
(b)Ms E;
(c)Ms N; and
(d)Mr and Mrs S.
[22] T Documents, T3.
Section 961B required the applicant, in giving personal advice to a retail client, to act in the client’s best interests. The applicant advised Mr and Mrs D, and Ms N, to invest in the IIOF, in circumstances where its product disclosure statement (PDS) expressly stated that its fund managers “[did] not take into account labour standards or environmental, social or ethical consideration[s] in the selection, retention or realization of investments [i]n the fund”. The advice was given despite the clients’ preferences for “ethical investments that do not invest in the contribution to global warming”, particularly no investment in petroleum shares.[23]
[23] Reasons, [41].
Section 961G required the applicant, in giving personal advice to a retail client, only to give such advice if it would be reasonable to conclude that it was appropriate to the client had the applicant satisfied the s 961B “best interests” duty. The applicant inappropriately advised Mrs D and Ms N to invest in the IIOF despite their preference to invest ethically, and despite Mrs D’s risk profile indicating that she was an inexperienced investor.[24] That advice was given despite the statement in the PDS noted above and despite the statement that the IIOF was open to experienced investors who met the medium investment criteria, due to its higher risk profile.[25]
[24] Reasons, [51].
[25] Reasons, [54].
ASIC particularly referred to the advice provided by the applicant to Mrs D. In a file note of a Fact Find Meeting, dated 20 April 2016, the applicant recorded that Mrs D (and others) “would like to look at ethical investments that do not invest in the contribution to global warning.”[26] In a Fact Find dated 2 May 2016, Mrs D is recorded by the applicant as having very little understanding or interest in investment markets.[27] The applicant’s SOA, dated 27 May 2016, contains a Strategy Recommendation at page 5 that Mrs D utilize $100,000 from existing cash funds to invest in the IIOF for one year.[28] At page 15, the applicant says: “This investment is similar to a term deposit with its time line investment however it targets a higher return.”
[26] T Documents, T3.33.
[27] T Documents, T3.36.
[28] T Documents, T3.18.
Section 961J required the applicant to prioritise her client’s interests where she knew, or reasonably ought to have known, that there was a conflict between the interests of the client and the interests of herself and her licensee. A conflict existed as the applicant had applied for multiple loans from the IIOF, thus making it beneficial for her if clients invested in it. Further, the IIOF product was issued by the licensee she was authorised by at the relevant time. The applicant advised some of her clients, including Mrs D, to invest in the IIOF where it would not be reasonable to conclude that the advice was appropriate to them and, therefore, failed to prioritise their interests.[29]
[29] Reasons, [56]-[58].
Section 947D required the applicant to provide additional disclosure to a client regarding costs, or benefits they may lose, as a result of switching from one product to another, as well as regarding all significant consequences for the client that she knew, or ought reasonably to have known, were likely. In relation to advice given to Mr and Mrs D to take $100,000 from cash at bank to invest in the IIOF, she failed to tell them that the funds could not be accessed for the investment’s term (one year), or that any redemption application would be subject to the fund manager’s discretion and could take up to 365 days for payment if accepted. There was a similar non-disclosure in respect of Ms N. The applicant also failed to disclose to each client that, as their adviser, she may have received advice fees from the IIOF of up to 1% initially and up to 0.5% on an ongoing basis.[30]
[30] Reasons, [68].
I accept on the evidence that the applicant did fail to comply with financial services laws as found by the delegate and submitted on behalf of ASIC. I also accept ASIC’s submission that the applicant’s conduct is not excused or explained away by a reliance on the instructions, procedures and processes of FinancialLink.[31] I also accept ASIC’s submission that it is irrelevant that the applicant was caught up in the ultimate failure of FinancialLink.[32]
[31] Applicant’s Submissions, [30(a)(iii)]; Second PMA Affidavit, [77].
[32] Applicant’s Submissions [37(a)].
The applicant says that the financial advice considered by the delegate represented approximately 8% of the personal financial advice she provided to clients during the relevant period. That, however, is not an insignificant percentage. Further, the Supplementary T Documents, lodged by ASIC, show that the same or similar advice in respect of the IIOF was provided by the applicant to clients other than those considered by the delegate.
The applicant acknowledged in cross-examination that the IIOF was not a low-risk investment. She agreed it had the potential to be volatile in terms of its returns. She initially did not agree that it was an inappropriate investment for persons who would require return of their money in the short term. As I understand her evidence, she relied on Mr Daly and Mr Nielsen, who gave her some sort of “oral guarantee” that investments could be withdrawn on relatively short notice. What she was told, however, and perhaps passed on to her clients, was not what the PDS revealed.
The applicant said she did not tell her clients that the fund was like a term deposit. That, however, contradicts her evidence elsewhere. I accept ASIC’s submission that, whatever the applicant’s precise words, her clients would most likely have understood, from what the applicant told them, that the investment was like a term deposit.
The IIOF was not a low risk investment. It was a new product. The investment was not easily withdrawn; indeed, there was a risk the fund would be frozen. It was not an “ethical” investment as sought by some of the applicant’s clients. It was not like a term deposit.
As to the applicant’s conflict of interest, she said that Mr Daly and Mr Nielsen told her there was no need to disclose to her clients that she had borrowed from the fund. She said that she did disclose her borrowings “in conversations” with her clients. When it was suggested to her that she made no specific note of any disclosure to clients, the applicant reverted to saying that she did not need to do so (or at least did not believe she needed to), in reliance on what Mr Daly and Mr Nielsen told her.
Further issues raised on review
ASIC submits that the Supplementary T Documents[33] show that the applicant did not meet her financial services adviser obligations regarding:
(a)advice concerning investment in the IIOF provided to clients additional to those referred to in the delegate’s Reasons; and
(b)advice she provided to clients, again not considered by the delegate, to establish and invest in or through self-managed superannuation funds (SMSFs).
[33] Exhibit B, (Supp T Documents) T18-T20.
In relation to the applicant’s advice on establishment and investment in an SMSF, ASIC expresses three categories of concern:
(a)the applicant’s apparent inability to differentiate between client direction and her own advice;
(b)a misunderstanding by the applicant of the client’s objective and purpose;
(c)a failure to consider, or at least to record if properly discounted, other strategies.
I accept that the acts and omissions relied on by ASIC did occur, and did involve breaches of ss 961B, 961G and 961J and 947D of the Act. I will refer briefly to these matters, limited substantially to those highlighted by ASIC.
ASIC refers to the applicant’s client, Ms MN.[34] Mrs MN was 73 years old when she received advice from the applicant. Her goals recorded in an SOA were to ensure she could keep receiving Centrelink payments and also earn extra income after receiving an inheritance of $236,000. Ms MN completed a risk profile and was identified as a moderately conservative investor. She did not want to take risks with her money. Ms MN had minimal assets beyond her principal residence prior to receiving the inheritance.[35]
[34] Supp T Documents, T18-T20.
[35] Supp T Documents, T20, File note dated 8 May 2017.
Notwithstanding her risk profile, the applicant advised Ms MN to invest her available funds in a range of financial products, including $100,000 in the IIOF, representing nearly 50% of invested monies.[36] I accept ASIC’s submission that given Ms MN’s age, minimal financial means, reliance on welfare, and conservative risk profile, advice to invest in the IIOF was clearly against her interests as the fund was too high risk for a client with these personal circumstances. As a result of the high-risk nature of IIOF, the recommendation to invest $100,000 of Ms MN’s available funds in the scheme was inappropriate.
[36] Supp T Documents, T18, SOA dated 15 June 2017, page 11, [5].
The applicant was taken in cross-examination to documents concerning her clients Mr and Mrs GR.[37] Mr and Mrs GR were in their 40s. Mr GR earned over $400,000 per year in salary. They were higher risk investors and intended to invest in real property. The GRs had a combined total superannuation balance of approximately $311,000.
[37] Supp T Documents, T23-T26.
The applicant advised the GRs to establish an SMSF for the purposes of purchasing investment properties through the fund.[38] The clients already owned four investment properties outside superannuation. The clients were advised to invest $100,000 in the IIOF as a short-term holding to be used in the near future to settle on an off-the-plan property investment.
[38] Supp T Documents, T24, page 14.
There is no analysis on the applicant’s file regarding the suitability of an SMSF for the GRs. ASIC submits, and I accept, that the applicant failed to use professional judgment in recommending an SMSF based on the clients’ circumstances and unreasonably relied on client direction to demonstrate compliance with the best interest obligations. ASIC submits, and I accept, that as a result of the relatively low starting SMSF balance, along with the lack of reasonable diversification due to the clients’ current exposure to real property, the SMSF as proposed by the applicant was not appropriate for the GRs.
There is no analysis on file regarding the suitability of the investment in the IIOF for the GRs. Given the GRs required access to the funds for settlement of a proposed off-the-plan property purchase, it was not in the clients’ best interests to use the IIOF for this purpose because relevant funds may not have been available to settle the planned property purchase in the near future.
In cross-examination the applicant was also referred to Ms AC and Ms DC, directors of the YC Super Fund.[39] The client Ms AC was 54 years old and wanted to set up an SMSF with her 28-year-old daughter. In an SOA dated 12 April 2017[40] the applicant recorded that the client’s goals and objectives were mostly around the setting up of a SMSF. The applicant wrote: “However I feel that to get the best benefits out of a SMSF your combined balanced [sic] would need to be significantly greater.”[41]
[39] Supp T Documents, T47-T52.
[40] Supp T Documents, T47.
[41] Ibid.
Despite this, and notwithstanding there was only a combined total of $187,000 in superannuation funds available, the applicant recommended setting up an SMSF to purchase a property. The applicant’s own calculations showed that this was unlikely to be viable. Additionally, the calculations provided by the applicant failed to account for any costs associated with the holding of the property.
Further, the applicant recommended a portion of the funds be invested in the IIOF – approximately $90,000 – despite the need for those funds to be available to purchase the proposed property within 1 to 2 years. The notes do not otherwise record a justification for investment in the IIOF. I accept ASIC’s submission that IIOF was not a low risk investment, and was volatile and unsuitable for clients intending to purchase real property in the near future. Yet the applicant recommended the IIOF where it was inappropriate given the clients’ short-term goal to purchase property.
I accept ASIC’s submission that the applicant failed to act in the client’s best interests when recommending the SMSF. She relied on client instruction in making a recommendation instead of utilising professional judgment. The applicant failed to identify how alternative options may not have been more suitable. I also accept that recommending a relatively high risk, illiquid fund such as the IIOF was not in the client’s best interest when this money was required within 1 to 2 years.
In relation to Z’s Superfund Pty Ltd,[42] on 29 September 2016, the applicant conversed with the clients by phone to discuss the strategy of purchasing a property through an SMSF.[43] The applicant specifically noted “I have not been able to make the numbers work and it was not a viable strategy.”[44] Notwithstanding this note, given the client expressed a desire to do so, the applicant in an SOA dated 10 November 2016 specifically recommended the establishment of an SMSF.[45] The applicant noted she met with the clients on 12 December 2016 to present her SOA and said words to the effect “I have to advise you that I don’t think you should do the SMSF as your balance should be more”.[46] However, her formal advice contained in the SOA contradicted this.
[42] Supp T Documents, T27-T31.
[43] Supp T Documents, T31.
[44] Supp T Documents, T31, page 3558 of Hearing Book.
[45] Supp T Documents, T27, SOA pages 11 and 13.
[46] Supp T Documents, T31, page 3561 of Hearing Book.
I accept ASIC’s submissions that due to the relatively small starting balance for the SMSF, it was not in the clients’ best interests or appropriate to commence an SMSF, especially for the known purpose of property investment, which would be less cost effective than an alternative option. Further, using the IIOF, which was a high risk, illiquid investment, as a short-term investment vehicle was not in the clients’ best interests. File notes record the clients had financial problems with the SMSF including a need to pause insurance payments in October 2018 due to a lack of funds, potential default on a home loan in 2019, and an inability to refinance due to a lack of sufficient cash reserves in 2019.
In relation to JS Superannuation Pty Ltd, the clients were 61 and 64 years old and had already established an SMSF. They were looking for advice about generating a retirement income from their SMSF. The SMSF had a combined starting balance of $125,000, with approximately another $700,000 of assets available to be transferred in as the clients owned a factory. The clients were moderately conservative regarding risk.
The applicant recommended inter alia that the clients contribute an additional $240,000 into the SMSF in addition to the $700,000 factory asset. The applicant recommended $100,000 be invested into the IIOF. The file does not indicate that the applicant discussed the nature of investment into the IIOF or disclosed her conflict of interest associated with the IIOF. There are no supporting notes regarding the appropriateness of this recommendation for the clients.
Ms NS[47] was approximately 70 years of age. Prior to receiving advice from the applicant, the client specifically stated to the applicant that she did not want to take risk and could not afford to lose any money.[48] In advice provided on 11 July 2017, it was identified that the client had received the proceeds of a property sale. The bulk of these funds were used to pay a deposit for an Aged Care Facility. The remaining funds of $258,516 were to be used for investment purposes.
[47] Supp T Documents, T38-T41.
[48] Supp T Documents, T38, File note dated 5 July 2017.
The applicant recommended Ms NS invest $130,000 of these funds in the IIOF, representing over 50% of her total investible funds. ASIC submits, and I accept, that the applicant failed to act in the client’s best interests in providing the advice to invest in IIOF. The applicant recommended a high risk, illiquid scheme with no justification why a safer alternative was not considered. The file notes do not record any rationale for recommending investment in the IIOF given the client’s age and risk profile.
In relation to L Family Super Pty Ltd,[49] the clients were 47 and 49 years old at the relevant time. In the initial meeting with the applicant, the file note indicates the clients had spoken to other financial advisers about investing in an SMSF but had been encouraged not to overload the fund with property. Due to the clients’ relatively small combined balance of $302,044 it was unlikely the fund could support a property purchase and remain appropriately diversified. The applicant failed to disclose the costs associated with holding real property through an SMSF, including maintenance, rates and debt financing costs.
[49] Supp T Documents, T42-T46.
While the purpose of the SMSF was to purchase property, the applicant recommended the clients borrow for the property purchase using a non-recourse loan. This would leave the fund with investible assets of $242,296 after the property deposit had been paid. The applicant recommended $100,000 of these funds be invested in the IIOF. I accept ASIC’s submission that the applicant failed to act in the clients’ best interest when recommending the establishment of the SMSF. The applicant also failed to use professional judgment in considering the appropriateness of a SMSF for the clients. Due to the relatively low combined super balances, the SMSF was unlikely to be cost effective or appropriately diversified when compared to alternative superannuation options, such as a retail superannuation account. The applicant failed to justify why the client’s use of the IIOF was in their best interest.
In relation to FE Pty Ltd,[50] the clients were 47 and 48 years old at the relevant time. The applicant recommended that they establish a SMSF to buy property. The clients had a total of $208,000 in superannuation funds. Despite needing to pay a 10% deposit, or $49,000, out of the funds for the property, as well as needing to pay a further amount of around $98,000 within a year or two, the applicant recommended $83,000 be invested in the IIOF. There is no evidence of justification for the recommendation of an investment in the IIOF recorded in the applicant’s file and no reasonable consideration of alternatives. As the funds would be required in the short term, it was not in the clients’ best interest to invest the funds in a high risk, illiquid fund. In recommending IIOF, the applicant failed to demonstrate she reasonably disclosed the details of the fund, including its investment strategy, illiquid nature and short-term trading history.
[50] Supp T Documents, T53-T56.
As I have noted, when referring to some of the applicant’s clients, but indeed it appears in all cases, when the applicant advised her clients to invest in the IIOF there was an undisclosed conflict between the applicant and her licensee’s interests and those of the clients. Given the process whereby the advice and services were provided to the clients, and the inappropriateness of such advice, I accept ASIC’s contention that the interests of the applicant’s clients were not prioritised as required by s 916J of the Act.
The applicant admitted to the delegate that she did not form her own opinion as to whether investment in the IIOF was low risk or high risk but merely accepted what she was told was true.[51] ASIC submits, and I accept, that this “jars” with her evidence before me that she assessed investment in the IIOF as appropriate for each of her clients.
[51] Reasons, [31].
In several respects, the applicant says that she relied on the advice of Mr Daly, or was somehow the victim of a poor compliance culture at FinancialLink. Yet, as ASIC submits, the applicant was under independent and distinct obligations to comply with her professional obligations.
The advice from the applicant to invest the IIOF exposed her clients to unnecessary and unwanted financial risk. It is not suggested that the applicant should or could have foreseen the fraud that enveloped the IIOF. But the fact is that her above clients who invested in the IIOF have not been able to redeem their investments, with losses currently between $200,000 and $50,000 each.[52]
[52] ASIC’s SIFC, Annexure B, Table of Client Funds invested in IIOF.
ASIC submits, and I accept, that had the applicant acted consistently with the best interests of her clients, given advice that was appropriate to the needs of her clients, and disclosed her conflict of interest associated with the IIOF, virtually none of those clients would ever have been advised to in invest in the IIOF, , or have invested in it, and they would not have been affected by the fraud.
Whether power to make a banning order enlivened
The power to make a banning order is enlivened if any one of the prerequisites contained in s 920A(1) of the Act is satisfied. The applicant does not dispute, and I find, that the applicant failed to comply with financial services laws under s 920A(1)(e) of the Act, as found by the delegate. I am also satisfied that the applicant failed to comply with financial services laws, as referred to above, in respect of her conduct as revealed in the Supplementary T Documents.
The delegate found that s 920A(1)(da) of the Act was also satisfied, in that there was reason to believe the applicant was not sufficiently trained or competent to provide one or more financial services. The delegate found that this was satisfied based on the applicant’s conduct that constituted her failure to comply with financial services law. I am similarly satisfied, independently of the delegate’s reasoning and conclusions, that at the time of the reviewable decision, the evidence established the applicant was not trained and competent to provide one or more financial services.
In one sense it is not necessary to decide whether this is still the case because the power to consider making a banning order is enlivened by the finding of non-compliance with a financial services law. The matter, however, was the subject of submissions, and a finding could have a bearing on the question of what sanction, if any, should be imposed.
ASIC maintains that the other prerequisites still exist. It accepts that the assessment must be made afresh at the time of this hearing. It bases its submission on the applicant’s previous conduct. ASIC submits that even if a person is adequately trained, then they may still not be competent. That is true although the two usually go hand in hand. Whilst maintaining that the applicant’s conduct is evidence that she was not adequately trained, ASIC’s focus was on the applicant’s competence.
The applicant argues that at this time I should not find there is reason to believe that she is not adequately trained or competent to provide any financial services. The difficulty is that there is very little evidence to support such a finding in favour of the applicant. As ASIC submits there is evidence of only four pieces of advice given by the applicant during the stay period. This, it is submitted, is insufficient to gauge the applicant’s current competence or whether she is adequately trained.
These advices were vetted by Mr Thomas. He suggested changes or additions to what the applicant had prepared. Mr Thomas’s suggestions are insufficient as establishing an ongoing lack of competence. And, as the applicant submitted, competence is not a standard of perfection. I cannot draw anything much from the applicant’s work since the imposition of the stay. Certainly her conduct as referred to above displayed inadequate competence or training. The applicant has undertaken further training but it is largely untested. I have taken into account Mr Thomas’s evidence concerning the applicant.[53] He recounts the applicant’s achievements, cooperation, compliance and work undertaken since joining Ballast Financial Management Pty Ltd (Ballast) on 25 April 2020. I have taken what he says into account. But the applicant’s lack of competence and training, as revealed by her conduct considered by the delegate, and revealed by the Supplementary T Documents, was so blatant and obvious that I would require more evidence than is before me to find that that is no longer the case.
[53] Jonathan Thomas Affidavit, particularly [10]; Exhibit JJT-1.
The other matter is whether there is reason to believe the applicant is likely to breach a financial services law in the future. Again, the delegate found this prerequisite was satisfied. It calls for a prediction, but more than that, a finding of a likelihood, as to future conduct. Past conduct is one indication, but so are such things as the applicant’s attitude and motivation. The applicant presented as articulate and intelligent. She is undertaking a law degree. She seems determined to remain in the financial services sector. She has had time to reflect on the findings made against her. I am not satisfied that the applicant is likely to breach a financial services law in the future.
Whether to make a banning order
The power to impose a banning order under s 920A is enlivened, but that does not mean a banning order must be imposed, much less a banning order of a particular duration. There must be a level of satisfaction that it is appropriate to make a banning order of a particular duration in the circumstances of the case given the objectives of the regulatory regime.
The objectives of the regulatory regime are set out in s 760A of the Act and s 1 of the ASIC Act.[54] It is not the case that a banning order should only be made where the evidence discloses that there is a (perceived) real threat that the conduct complained of or conduct in similar circumstances is likely to arise in the future.[55]
[54] Bowker and Australian Securities and Investments Commission [2020] AATA 573 (Bowker), [92].
[55] Australian Securities and Investments Commissionv McCormack [2017] FCA 672 (McCormack), [34]-[36], [38] (O’Callaghan J).
ASIC has published guidance to the industry and to ASIC’s decision-makers in Regulatory Guide 98: ASIC’s powers to suspend, cancel and vary AFS licences and make banning orders (RG 98). Table 2 of RG 98 sets out the key factors ASIC will consider in deciding whether to make a banning order. Table 3 of RG 98 provides examples of conduct relating to specific periods of banning.
ASIC submits that the applicant’s conduct, by reference to the Guidelines, attracts a banning period of three to ten years. ASIC submits that extending the length of the ban beyond the two years imposed by the delegate is justified by reference to the further contraventions revealed in the Supplementary T Documents. ASIC accepts, it says, that the applicant’s conduct is at the lower end of scale, and should attract a banning period of no less than four years.
The Guidelines are useful, and tend to promote consistency, but they should not be inflexibly applied. It is still necessary to consider what is appropriate in the individual circumstances of each case.[56] There is wide range of factors which may be relevant to whether a banning order should be imposed.[57] They include the size of the losses suffered, specific and general deterrence, contrition on the part of the applicant, the applicant’s previous good character, prejudice to the applicant, and cooperation by the applicant.[58]
[56] Ibid, [93].
[57] McCormack, [38] & [42], citing inter alia Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 (Rich) (per McHugh J), and HIH Insurance Ltd (in prov liq); v Adler [2002] NSWSC 483; see also Tarrant v Australian Securities and Investments Commission (2015) 317 ALR 328 at [46] (Rares, Yates and Griffiths JJ).
[58] Rich, [43].
ASIC submitted that the applicant has not shown a real appreciation of her contraventions and has sought to down-play them. I do not accept that. As I see it the applicant has rightly accepted her non-compliance with various financial services laws, whilst arguing, as she is entitled to, for as minimal sanction as possible. I accept she has contrition for what has occurred.
ASIC relied particularly on general and specific deterrence. General deterrence, ASIC submits, is fundamental in determining whether to impose a disqualification or, in the current context, a banning order. It is not the case that general deterrence is not a relevant consideration where it is unlikely that other persons in the future will be faced with the same circumstances.[59]
[59] McCormack, [47]-[48].
ASIC submitted that specific deterrence is of particular importance in this matter, given the applicant’s lack of understanding of her obligations as a financial adviser, as displayed to the delegate. Assertions that the applicant has learnt her lesson, that it is implausible the same circumstances will be repeated, and that she might take adequate steps to rectify a lack of care in the future are unlikely to justify not imposing a banning order given public interest concerns.
ASIC acknowledges there are mitigating factors, but submits, in summary, the nature and seriousness of the conduct, general deterrence, specific deterrence, mitigating factors, and the guidance provided by Table 3 of RG 98, mean that a banning order of not less than 4 years is appropriate.
ASIC submitted that an enforceable undertaking is inappropriate. ASIC submits it would be extremely lenient, and I have to say I agree with that, given the conduct engaged in by the applicant and, in particular, the need for general deterrence, or to satisfy the statutory objectives of the Act or the ASIC Act. ASIC accepts there are mitigating factors, and that they are appropriately taken into account by ordering a banning period at the lower end of the scale in Table 3 of RG 98.
For the applicant, it was submitted that the matters the subject of the delegate’s decision occurred relatively early in her career as a financial adviser. She further submits that the advice concerning the IIOF, as revealed in the Supplementary T Documents, was the same in nature as considered by the delegate, and initially that advice for the most part was given within the same relevant period.
As the applicant points out, banning orders are only one of the mechanisms available to address concerns about shortcomings of such persons as financial advisers. A sanction such as an enforceable undertaking, appropriately applied, has the necessary effect of deterring others from failing to adhere to the standards required of such persons.[60]
[60] Panganiban v Australian Securities and Investments Commission [2016] FCA 510, [15] (Bromwich J).
The applicant is about 43 years old. She is of First Nations heritage. She has worked in the financial services industry for approximately 18 years in various roles, including compliance, financial product distribution, advising, and more recently as a business owner.[61] The applicant first commenced working as an authorised financial adviser on 1 July 2013.[62] In May 2016 the applicant had been a financial adviser for three years in a part-time capacity.
[61] Second PMA Affidavit, [23].
[62] Second PMA Affidavit, [24].
The applicant is currently:
(a)a director of Addicott Partners Pty Ltd (ACN 633 138 066) (Addicott Partners), a financial advice and planning business;
(b)a director of Anderson Lutgens & Co, trading as Beyond iWealth, a former financial advice and planning business in the process of being de-registered with the respondent;[63]
(c)an authorised representative of AD Advisory Services Pty Ltd (ACN 005 830 802), the holder of AFS licence number 237058 (AD Advisory); and
(d)the chief executive officer of EMILY’s List Australia, a financial, political and personal support network for progressive Labor women in Australian politics;[64]
(e)a part-time student at Deakin University, studying a Bachelor of Laws;[65] and
(f)in addition, the applicant undertakes voluntary community work to educate and empower Australian women and First Nations peoples, in particular, on matters of financial literacy, equality and social justice.[66]
[63] Second PMA Affidavit, [15(b)]; Exhibit PMA-2, pages 121-123.
[64] Second PMA Affidavit, [16]; Fourth PMA Affidavit, [23].
[65] Second PMA Affidavit, [12]; Exhibit PMA-2 pages 60-63; Fourth PMA Affidavit, [28].
[66] Second PMA Affidavit, [75].
The applicant refers to the length of time between the applicant receiving, on 13 November 2019, a notice under s 920A of the Act that the respondent was considering whether she should be banned from providing financial services, the hearing before the delegate, and notification of the banning order. It was not until 3 August 2021, which was approximately 17 months after the hearing, that the applicant was notified of the reviewable decision and the consequent banning order.[67]
[67] PMA Affidavit, [74].
ASIC has provided a chronology of events which explains the delay.[68] There is no need to go into detail. On occasions it was to accommodate the applicant. I do not consider there should be any criticism of ASIC or the delegate (or, for that matter, the applicant) over what occurred. I have nonetheless taken the delay into account.
[68] ASIC’s SIFC, Annexure A, Chronology.
The applicant points out that the respondent’s concerns at that time related to the applicant’s conduct during what has been described as the relevant period, that is, between 26 May 2016 and 6 October 2017, which the applicant points out began more than seven years ago and ended more than five years ago. The matters referred to in the Supplementary T Documents, first stated in ASIC’s statement of issues, facts and contentions dated 28 September 2022, also occurred during or not long after that period. The initial advice provided to each of those clients was given during the relevant period.
The stay order was made on 17 February 2022, the applicant signed an undertaking in the form agreed with the respondent on 15 June 2022,[69] and the stay order became operative on 11 July 2022. The applicant was re-appointed as an authorised representative of AD Advisory on the same day.[70]
[69] Second PMA Affidavit, [105]; Exhibit PMA-2, page 313.
[70] Second PMA Affidavit, [109]; Exhibit PMA-2, pages 112-118.
Since 11 July 2022, the applicant has provided personal financial advice. On each occasion, the advice provided by the applicant was:
(a)provided to an existing client; and
(b)vetted by Mr Thomas, being a person with requisite qualifications and experience nominated by AD Advisory; and
(c)otherwise provided in accordance with the conditions of the stay order.[71]
[71] Fourth PMA Affidavit, [29]-[34]; Exhibit PMA-4, page 30.
Mr Thomas is the managing director and a responsible manager of AD Advisory.[72] AD Advisory authorises the applicant to provide financial advice under its AFS licence. Mr Thomas says that in his time supervising and monitoring the applicant as an authorised representative of AD Advisory (and formerly as an authorised representative of Ballast), he has always found the applicant to be open, honest and transparent, and to act with propriety and in the best interests of her clients.[73]
[72] Jonathan Thomas Affidavit, [1].
[73] Ibid, [11].
The applicant submits that while the principle of general deterrence must be taken into account, it does not dictate that a banning order must be made. The principle, it is submitted, would not be served in this case by a banning order. As to specific deterrence, although it must be taken into account, the applicant submits that the evidence with respect to the applicant’s conduct and endeavours, both before and after reviewable decision was made, including under the conditions of the stay, support a conclusion that a banning order is not warranted by the principle of specific deterrence. It is pointed out, and not disputed by ASIC, that the applicant’s conduct was not dishonest, or part of a conscious decision to contravene a financial services law.
It is pointed out that applicant promptly ceased being authorized by FinancialLink, and transferred to another AFS licensee unrelated to FinancialLink or any of its associates, on becoming aware of ASIC’s concerns in relation to Linchpin, Endeavour and others, including Mr Daly. I have taken this into account together with the evidence concerning the applicant’s reputation and standing in the community. I refer in particular to Mr Thomas’s reference in favour of the applicant.[74]
[74] Jonathan Thomas Affidavit, [11]; Exhibit JJT-1.
The applicant submitted that the evidence of her conduct since the period the subject of the reviewable decision demonstrates that the decision should be set aside.[75] I understand that submission now relates to the period subsequent to relevant events disclosed in the Supplementary T Documents. The applicant submits that a banning order, or on-going banning order, would serve to punish the applicant. The evidence, it is submitted, demonstrates that the public does not require protection from the applicant, and I should not be satisfied that it is appropriate to make a banning order in the circumstances of the case given the objectives of the regulatory regime.[76]
[75] Second PMA Affidavit, [94].
[76] Bowker, [92]; Codey and ASIC (1995) 18 ACSR 209 at 212.
Alternatively, the applicant submits, the relevant statutory objectives will best be achieved by a substituted decision and remittal by which the applicant will be subject to a written undertaking given under ss 93AA of the Act,[77] and the terms and period of such an undertaking, as proposed by the applicant, are appropriate for that purpose.[78]
[77] Australian Securities and Investments Commission v Donald (2003) 136 FCR 7.
[78] Second PMA Affidavit, [116(b)(i)].
Alternatively, the Tribunal should not be satisfied that it is appropriate to make a banning order for any period longer than those to which the applicant has already been subject, prior to the stay order taking effect.[79]
[79] Second PMA Affidavit, [116(c)].
The applicant has given evidence that if a banning order is made, her capacity to earn income will be significantly diminished, the business operations of Addicott Partners will be substantially impacted, and the business will be unable to continue to employ its administrative support staff.[80] These are genuine concerns, but I am unable to say what the real impact will be on the applicant. I note her income is not confined to proceeds from Addicott Partners. I note the business continued to operate notwithstanding the applicant has apparently been working three days per week with EMILY’s List Australia.
[80] Fourth PMA Affidavit, [17].
The applicant expresses concern that banning order may be or trigger an event of default under the NAB Business Options Instalment Loan, under which the applicant and her husband are guarantors of the obligations of Addicott Partners.[81] There is insufficient evidence to establish that is realistic concern. I note the NAB loan was being refinanced during the stay period. The evidence is vague.
[81] Ibid, [18]-[20].
The applicant also expressed concern that she will no longer be able to provide First Nations peoples with financial advice or pro bono advice to women. Amongst other things the applicant is concerned about the impact on her endeavours to be admitted as an Australian legal practitioner.[82]
[82] Ibid, [22].
Conclusion
I have taken into account all of the above. I agree with ASIC that either no sanction, or an enforceable undertaking, being the first two alternatives proposed on behalf of the applicant, is unacceptable. I do not consider anything other than a banning order would be appropriate given the number and seriousness of the contraventions of the Act. I appreciate the applicant’s submissions concerning specific and general deterrence as they apply to this case, but do not accept them. Instead, I accept ASIC’s submissions in respect of both these matters and that they favour a banning order in this case.
There are mitigating factors, as ASIC concedes, which I have referred to above. Absent those factors I would be inclined to impose a four-year ban which would be within the Guidelines albeit at the lower end of the range. Consistency, of course, is desirable, but it is important to take into account the applicant’s particular conduct, the circumstances in which that conduct occurred, and the applicant’s particular characteristics. ASIC submits that the ban imposed by the delegate should be at least doubled in length particularly having regard to the applicant’s conduct as revealed in the Supplementary T Documents which did not feature in the hearing before the delegate. Against this are the many mitigating factors I have mentioned which I take into account.
In balancing all these matters I have also concluded, based on the evidence and the parties’ submissions before me, that the correct and preferable decision is that the applicant should be banned for two years. The delegate’s decision will therefore be affirmed.
I certify that the preceding 104 (one hundred and four) paragraphs are a true copy of the reasons for the decision herein of Deputy President I Molloy
.................................[SGD].................................
Associate
Dated: 17 November 2023
Date(s) of hearing: 3-4 October 2023 Counsel for the Applicant: F Alpins Solicitors for the Applicant: Mills Oakley Counsel for the Respondent: T Goodwin
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