Rothnie and Australian Securities and Investments Commission (Taxation)
[2021] AATA 1545
•31 May 2021
Rothnie and Australian Securities and Investments Commission (Taxation) [2021] AATA 1545 (31 May 2021)
Division:Taxation and Commercial Division
File Number(s): 2019/4633
Re:Mark Alexander Rothnie
APPLICANT
AndAustralian Securities and Investments Commission
RESPONDENT
DECISION
Tribunal:Deputy President I R Molloy
Date:31 May 2021
Date of written reasons: 31 May 2021
Place:Brisbane
The decision under review is affirmed.
...............[SGD]..................
Deputy President I R Molloy
Catchwords
TAXATION AND COMMERCIAL – Australian Securities and Investments Commission –- financial services provider – banning order under s 920A of the Corporations Act 2001 (Cth) – breach of banning order – failure to act in the best interest of clients – failure to provide appropriate advice – failure to prioritise clients’ interests – contravention of financial services laws
Legislation
Corporations Act 2001 (Cth)
Financial Sector Reform (Hayne Royal Commission Response – Stronger Regulators (2019 Measures)) Act 2020 (Cth)
Cases
Australian Securities and Investments Commission v Adler [2002] NSWSC 483
Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liquidation) [2020] FCA 208
Australian Securities and Investments Commission v Financial Circle Pty Ltd [2018] FCA 1644
Australian Securities and Investments Commission v NSG Services Pty Ltd [2017] FCA 345
Australian Securities and Investments Commission v Westpac Securities Administration Limited [2019] FCAFC 187
Rich v Australian Securities and Investments Commission [2004] HCA 42Secondary Materials
Australian Securities and Investments Commission Regulatory Guide 98: powers to suspend, cancel and vary AFS licences and make banning orders September 2018
Australian Securities and Investments Commission Regulatory Guide 175 Licensing: Financial product advisers – Conduct and Disclosure November 2017
REASONS FOR DECISION
Deputy President I R Molloy
31 May 2021
1.On 29 July 2019 a delegate of the Australian Securities and Investments Commission (“ASIC” or “the Respondent”) made an order under ss 920A and 920B of the Corporations Act 2001 (Cth) (“the Act”) prohibiting Mr Rothnie, the Applicant, from providing any financial services for a period of three years.[1]
[1] Exhibit 1, ASIC Reasons for Decision, T3, pp 12-29.
2.Mr Rothnie, by application dated 31 July 2019, applies for review of that decision. The review is a hearing anew and, as the parties agree, is not limited by the facts or circumstances as they existed at the time of the reviewable decision.
ASIC’s contentions
3.ASIC has summarised its contentions as follows:
a. a banning order under ss 920A and 920B of the Act ought to be affirmed;
b. the banning order made on 29 July 2019 ought to be varied so that:
i.the Applicant is banned for a period of 5 years; and
ii.in addition to being banned from providing any financial services, the Applicant be banned from:
(i) controlling, whether alone or in concert with one or more other entities, an entity that carries on a financial services business; and
(ii) 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).[2]
[2] ASIC contends that these orders were not available to the delegate, but because of the amendment of s 920B by the Financial Sector Reform (Hayne Royal Commission Response – Stronger Regulators (2019 Measures)) Act 2020, they are now available to this Tribunal. The Applicant accepts the amended version of s 920B of the Act applies in this review but says that in the event a banning order is appropriate (which is disputed) it should not be expanded in scope: Exhibit 2, Applicant’s Amended Statement of Issues, Facts and Contentions dated 10 December 2020 and Corrigendum, (“Applicant’s SIFC”), paragraph 4A.
4.ASIC contends the power to make a banning order is triggered because:
a. the Applicant did not comply with financial services laws in various respects in relation to five relevant client groups – s 920A(1)(e); and
b. there is reason to believe that the Applicant is likely to contravene a financial services law – s 920A(1)(f).
5.ASIC contends that in relation to the first limb (past failures to comply with financial services laws), there were contraventions across the five client groups of three statutory requirements, namely, the Applicant:
a. failed to act in the best interests of those clients – s 961B;
b. failed to provide appropriate advice – s 961G; and
c. failed to give priority to his clients’ interests – s 961J.
6.ASIC contends that in relation to the second limb (reason to believe likely future contraventions) that:
a. the Applicant’s approach to the provision of financial services demonstrates a lack of understanding of the obligations imposed on him, which has remained evident even during these proceedings; and
b. even after the banning order was made, the Applicant provided financial services in contravention of the banning order.
7.ASIC contends that the following matters support exercising the discretion to make a banning order:
a. the nature and seriousness of the misconduct over an extended period;
b. clients suffered loss (actually or potentially);
c. the Applicant was not proactive nor did he comply with internal controls;
d. the need to promote fairness, honesty and professionalism by those who provide financial services and the promotion of confident and informed decision-making by consumers; and
e. the Applicant lacks a proper understanding of his obligations.
8.According to ASIC the expanded banning order under the amended s 920B is appropriate because of the Applicant’s lack of understanding of his obligations and also his conduct after the banning order in providing financial services in contravention of the banning order.
Applicant’s contentions
9.Mr Rothnie’s contentions may be summarised as follows. He contends that the banning orders made by ASIC on 29 July 2019, prohibiting him from providing any financial services for a period of 3 years (that is, until 29 July 2022), should be set aside.
10.Mr Rothnie contends that:
a.ASIC’s allegations that he has failed to comply with financial services laws (namely ss 961B, 961G and 961J), for the purposes of s 920A(1)(e) of the Act are not made out;
b.while he did breach the banning order, as ASIC contends, in respect of the one client, the breach was minor, inadvertent, and no harm ensued;
c.there is no reason to believe that he is likely to contravene a financial services law;
d.further or alternatively, that any contraventions which have occurred, or likely to occur in future, are not of such magnitude as to warrant the imposition of a banning order either at all, or beyond the period already elapsed of the current ban, or for any increased period or of the breadth now sought by ASIC.
Background
11.The matters contained in paragraphs 12 to 24 below are not disputed.[3]
[3] Exhibit 5, Respondent’s Further Amended Statement of Issues, Facts and Contentions dated 16 January 2021 (“Respondent’s SIFC”), paras 5 to 13; Applicant’s SIFC, para 5.
12.GPS Wealth Ltd ACN 005 482 726 (“GPS Wealth”) is an Australian financial services (“AFS”) licensee. Mr Rothnie became an authorised representative for GPS Wealth on 7 January 2014 and operated under the same AFS licence until 29 July 2019.
13.Rothnie Financial Security Pty Ltd ACN 115 161 969 (“Rothnie Financial Security”) is a corporate authorised representative of GPS Wealth and has been so authorised since 7 January 2014.
14.Mr Rothnie was a director of Rothnie Financial Security from 6 July 2005 to 6 April 2020. Mr Steven Jones became the sole director of Rothnie Financial
Security on 6 April 2020.
15.From 1 July 2019, Mr Rothnie merged his practice with Mr Steven Jones’ under the trading name Clear FP.
16.The trading name Clear FP is held by Clear and Secure Pty Ltd (“Clear and Secure”), a corporate authorised representative of GPS Wealth.
17.Mr Rothnie was a director of Clear and Secure from 19 June 2018 to 6 April 2020. Mr Steven Jones has been a director of Clear and Secure from 19 June 2018 and is now the sole director.
18.Clear FP employed three financial advisers – Mr Steven Jones, Mr Rocky Johnston and Mr Brendan Jones; a paraplanner and an administration assistant.
19.From 7 January 2014, Mr Rothnie provided financial product advice about:
a.government debentures, stocks or bonds;
b.investment life insurance products;
c.life risk insurance products;
d.managed investment schemes, including IDPS,
e.retirement savings account products; and
f.superannuation
20.In his capacity as an authorised representative of GPS Wealth, and relevant to these proceedings, Mr Rothnie provided financial advice and recommended insurance products to the following five groups of clients (whose names the parties agreed should not be published):
a. Dr N;
b. Mr and Mrs E;
c. Mr and Mrs S;
d. Mr M; and
e. Dr B and Dr A
(each a “Client”).
21.Each Client was a retail client within the meaning of s 761A and s 761G of the Act.
22.The products in respect of which Mr Rothnie gave advice included life, total and permanent disability (“TPD”), income protection, and trauma insurance. Each product was a financial product within the meaning of s 761A, s 763A and s 764A of the Act.
23.The advice that Mr Rothnie relevantly gave to each of the Clients was financial product advice within the meaning of s 761A and s 766B because it was intended, or could reasonably be regarded as being intended, to influence the Clients in making a decision regarding the product.
24.The financial product advice that Mr Rothnie gave was personal advice within the meaning of s 761A and s 766B(3), and a financial service within the meaning of s 761A and s 766A of the Act.
25.Additionally, I am satisfied as to the facts referred to in paragraphs 26 to 37 below.[4]
[4] See the Applicant’s SIFC, paras 6 to 13B, and 13F.
26.Mr Rothnie holds a Diploma of Financial Planning, is a member of the Association of Financial Advisers, and has almost 20 years’ experience as a financial adviser, commencing in 2001.
27.Between 2001 and 2005 Mr Rothnie was practising as an employed financial adviser, working for Ced Hartmann Financial Services.
28.On 6 July 2005, he established his own financial advisory firm, Rothnie Financial Services, initially comprising himself and one ancillary staff member.
29.In about 2016, Mr Rothnie’s firm had approximately 1,000 clients, predominantly tradespeople, and was generating approximately 200 new clients per year. At this time, Mr Rothnie sold a book of approximately 500 clients to JAS & Associates Pty Ltd (another financial advisory firm, operated by Steven Jones), in order that Mr Rothnie could shift his focus to servicing medical professionals, particularly dentists, as his primary client base.
30.As mentioned previously, Mr Rothnie merged his practice with that of Mr Jones in July 2019, under the trading name Clear FP.
31.From about 2016, Mr Rothnie’s practice was focused predominantly on advising dentists and (to a lesser extent) other medical professionals. As at 30 June 2019, Mr Rothnie’s book of 572 clients included 313 dentists, from a base of approximately 20 dentists in 2016.
32.Mr Rothnie developed that practice predominantly by presenting at dental industry seminars (usually around 3-4 per year) and subsequent word-of-mouth referrals.
33.Mr Rothnie claims to have developed significant expertise in his field in respect of dentists, the professional or financial risks they face, and the nature and result of claims they make on their insurance policies.
34.In the period prior to the banning order (29 July 2019), Mr Rothnie’s role at Clear FP, and previously at Rothnie Financial Services, was Senior Risk Adviser. Mr Rothnie ceased using that title after the banning order.
35.Mr Rothnie’s remuneration was solely from commissions. Typically he would receive an initial commission on new insurance and a trailing commission. I was informed that if a client maintained the same type of cover with an existing insurer, then he would be remunerated by commission relative to any increased premium. It is fair to say that “Mr Rothnie’s business model required him to write (or re-write) insurance with commissions to keep his business profitable and/or sustainable.”[5]
[5] Exhibit 1, Andrew Neil Kendall’s first report, T26.1 p 4649, para 271.
36.From about September 2019 to 9 March 2020, following the banning order, Mr Rothnie’s role was styled Head of Operations and Client Services which, he contends, reflected his ban on providing financial services, but also that he was still permitted to be involved in the business performing duties other than providing a financial service.
37.From about 9 March 2020, Mr Rothnie ceased to play any active role in the business of Clear FP, as a result of concerns raised by GPS Wealth. He formally resigned as a director of Clear and Secure on 6 April 2020, but remains a shareholder.
Issues in Dispute
38.The issues in the proceedings are:
(a) Whether Mr Rothnie has failed to comply with:
(i)his duty under s 961B of the Act to act in the best interests of his Clients referred to in paragraph 20 above;
(ii)his duty under s 961G to provide advice it would be reasonable to conclude was appropriate in relation to those Clients;
(iii)his duty under s 961J of the Act to give priority to his Clients’ interests when giving advice where Mr Rothnie knew or reasonably ought to have known that there was conflict with the interests of his said Clients.[6]
[6] The best interests duty in s 961B, the appropriate advice requirement in s 961G, and the conflicts priority rule in s 961J are separate obligations that operate alongside each other and apply every time personal advice is provided: ASIC Regulatory Guide 175 Licensing: Financial product advisers – Conduct and disclosure November 2017 (“RG175”) RG175.235(d).
(b) In light of inter alia Mr Rothnie’s prior conduct, is there reason to believe that he is likely in the future to contravene a financial services law.
(c) If Mr Rothnie has failed to comply with a financial services law, or if there is reason to believe that he is likely to contravene a financial services law, should a banning order be made.
(d) If a banning order should be made, for what period should Mr Rothnie be banned and on what terms.
Evidence
39.There were numerous documents the bulk of which were included in an agreed bundle.[7] Subsequent to the hearing, the Respondent lodged with the Tribunal further documents in its possession or control which had only recently come to its attention. These were ultimately admitted into evidence without objection.[8]
[7] Exhibit 1, T Documents, T1-32.
[8] Exhibit 6, Supplementary T Documents, T33.1-24; 4 March 2021.
40.By agreement, ASIC presented its case first. It called one witness, Andrew Neil Kendall, a certified financial planner, who provided two expert reports.[9] He was cross-examined for about half a day.
[9] Exhibit 1, T Documents, T26.1-18 and T26.19-28.
41.I was impressed by Mr Kendall as a witness. In both his reports and his oral evidence, he displayed knowledge and expertise in his field. His reports were well-reasoned, thorough and objective. I thought his answers were measured and considered. He appropriately but thoughtfully conceded certain matters which were put to him.
42.On behalf of the Applicant, Mr Rothnie and two other witnesses, each financial advisers, Brendan Jones and John Dean, gave evidence.
43.Mr Rothnie relied on his statement of issues, facts and contentions (“SIFC”) dated 9 December 2020 (and Corrigendum),[10] his affidavit sworn on 11 October 2019[11] (prepared for the purpose of an application for a stay and confidentiality order), a brief statement dated 2 September 2020,[12] and a further statement dated 15 January 2021.[13]
[10] Exhibit 2, Applicant SIFC.
[11] Exhibit 3, Applicant Affidavit dated 11 October 2019.
[12] Exhibit 1, Statement of Mark Alexander Rothnie, T30.31.
[13] Exhibit 4, Applicant Statement dated 15 January 2021.
44.Most of Mr Rothnie’s evidence-in-chief was contained in his SIFC[14] the facts in which he adopted as true and correct. His SIFC was carefully and professionally drafted; it was not expressed in Mr Rothnie’s words.
[14] Exhibit 2, Applicant SIFC.
45.I was not satisfied with Mr Rothnie’s evidence. I thought he tailored his answers to fit the circumstances. At times he prevaricated seemingly struggling to find the best answer if he could.[15] He was not objective or candid. I refer, by way of example, to his evidence concerning an alleged contravention of the banning order in early 2020 and his email exchanges with Dr S.[16] I accept ASIC’s submission that, to the extent that Mr Rothnie made any concessions in cross-examination, those concessions had to be dragged out of him.[17]
[15] E.g. Transcript, page 144, lines 4-25; page 112, lines 1-12.
[16] Transcript, page 110 lines 33-45.
[17] Respondent’s Submissions, para 37.
46.Some of Mr Rothnie’s evidence was not credible. I refer, for example, to his evidence that his clients consistently declined a recommended full insurance needs analysis and how this came to be recorded in his Statements of Advice. This and other matters made it difficult to accept Mr Rothnie’s evidence on any issues in contention. On matters in dispute, especially involving expertise or professional experience, except as otherwise specifically stated, I have considered and preferred Mr Kendall’s evidence over that of Mr Rothnie.
47.In making these findings, and reaching a level of satisfaction in respect of all adverse findings concerning Mr Rothnie’s conduct, omissions or motivations, I have been conscious of the seriousness of some of the matters alleged against him, the gravity of the findings, and the possible consequences in deciding such matters.
48.Mr Jones described himself as a senior risk adviser and previously a paraplanner. I found him to be an honest and straight-forward witness.
49.Mr Dean had operated from the same offices as Mr Rothnie. He was cross-examined, in particular, on documents in which he, and a staff-member in Mr Rothnie’s office, appeared to witness a Client’s signature on 14 May 2014.[18] It is convenient to address that evidence now.
[18] Exhibit 1, TAL Super & Insurance Fund Application, T24.64, page 3.
50.Mr Rothnie had met the Client, Mr M, at about 2.30 pm that same day at the Gold Coast. Mr M’s signature was apparently witnessed subsequently at Mr Rothnie’s office in Brisbane. The contention was that Mr M, in all the circumstances, would not have travelled from the Gold Coast to Brisbane (45 minutes away) to sign the documents. It was suggested that in truth Mr Rothnie had brought the documents, including a binding death nomination, signed by Mr M, back to his office where they were then signed by the witnesses, including Mr Dean.
51.Mr Dean had no recollection of meeting Mr M. He was certain, however, that he had never witnessed a signature except where the signatory had signed the document in his presence.[19] ASIC did not submit that Mr Dean was dishonest or that his evidence was deliberately false. Those matters were not put to him and consequently it would be unfair that I consider his evidence in this light.
[19] Transcript, p 194, lines 25-35; Exhibit 1, T30.32, statement dated 31 August 2020; compare Mr Kendall’s comments, Exhibit 1, Andrew Neil Kendall’s first report, T26.1 p 4646, para 258(b).
52.Instead, ASIC contended that Mr Dean was mistaken in this instance. To my mind, however, given Mr Dean’s strong and unequivocal evidence on the matter, I cannot accept that on this one occasion he had mistakenly “witnessed” a signature as ASIC suggest (or that he has now forgotten that he did so). It is possible, as Mr Dean says, that Mr M visited Mr Rothnie’s office in the evening of the same day as the meeting on the Gold Coast.[20] Another possibility is that he visited the office on some later day, and the document is wrongly dated the day of the meeting.
[20] Transcript, p 194, lines 35-40.
53.I turn now to the Clients referred to in paragraphs 20, and ASIC’s and the Applicant’s contentions in respect of each of them.
Dr N
54.Dr N was a self-employed dentist in suburban Sydney earning $205,000 per annum. He sought out Mr Rothnie after meeting him at a dental seminar. He wanted to increase his life and TPD cover (with particular amounts in mind) and to review his insurance more generally. Dr N had existing cover with MLC: Income Protection $12,802; and Term Life/TPD $324,000.
55.A fact find[21] that Mr Rothnie completed for Dr N dated 12 April 2017 records only minimal information about Dr N's financial situation and no information about his health status or pre-existing medical conditions. No superannuation details were included.
[21] “It is industry standard to use some sort of pro forma document to capture client details when first meeting with a financial planning client. The document is typically called a fact find. The document is usually 10 to 20 pages in length and asks questions about personal details, reasons for seeking advice, investment attitudes, requirements for life insurance and current financial situation”: Exhibit 1, Andrew Neil Kendall’s first report, T26.1, p 4604, para 19(d).
56.A Statement of Advice[22] (“SOA”) was sent to Dr N on 22 May 2017.[23]
[22] “A Statement of Advice (SOA) is the prescribed written means through which an adviser provides personal financial advice to a client”: Ibid, p 4605, para 19(g).
[23] Exhibit 1, Statement of Advice PDS and other Annexures email from [Dr N] to Mr Rothnie, T16.21
57.In the SOA Mr Rothnie recorded inter alia:
You advised that you wish to insure yourself for a sum insured amount of $3,500,000 for Life Cover, $2,000,000 for Total & Permanent Disability cover with an “own occupation” definition and $200,000 for Trauma cover
…
I recommended that we conduct a full needs analysis of your insurance to ensure the sum insured amounts meets (sic) your needs, however, you have advised you are happy with the sum insured amounts you have specified at this time.
58.The second of these paragraphs, in the same or similar words, found its way into other of Mr Rothnie’s SOAs in these proceedings. When it was put to Mr Rothnie that his notes, so far as they were available, did not support any conclusion that such an offer was made and refused, he said that this was a mistake on his part, and the paraplanner preparing the SOA “would give me a call and ask me about the needs analysis.”[24]
[24] Transcript, pages 124, lines 10-16, & 140, lines 6-18.
59.It seems illogical that clients, who were engaging an insurance adviser, would refuse this offer (indeed recommendation) if it were made. It seems unlikely that Mr Rothnie would then mistakenly fail to record this, or that the paraplanner preparing the SOA (in light of this omission from Mr Rothnie’s notes) would then contact him as he describes.
60.On behalf of Mr Rothnie it was contended that there is no “single piece of positive evidence” to contradict his assertion that he properly explored the Clients’ needs and relevant sums insured, and that they declined “a more extensive financial analysis”.[25] It was submitted that “in each case a full financial needs analysis was declined by the client, he consistently took steps to discuss the policies in detail, and explore the appropriateness of any of the insured sums instructed.”[26]
[25] Applicant’s Outline of Closing Submissions dated 21 January 2021 (“Applicant’s Submissions”), para [13].
[26] Ibid para [20(a)].
61.Based on what I have said, however, and having observed Mr Rothnie and heard his evidence, I am satisfied that his evidence on these matters, in particular on whether a full insurance needs analysis was recommended and declined, cannot be accepted. Despite Mr Rothnie’s resistance to the proposition,[27] I am satisfied on all the evidence that this was in effect a standard or default (not to say invariable) inclusion in his SOAs.
[27] Transcript, page 140, lines 3-24.
62.In the SOA Mr Rothnie recommended that Dr N replace his existing policies with the following:
Insurance type Policy name Underwriter Benefit amount Annual Premium Owned inside of super Term Life/TPD Priority Protection – Life Cover TPD Rider AIA Australia $3,500,000
$2,000,000
$3,413.29 Owned outside of super Income Protection Professionals Choice - IP PPS Mutual $12,802 $3,555.72 TPD Priority Protection – TPD Rider AIA Australia $2,000,000 $446.64 Trauma Priority Protection –Crisis Cover
AIA Australia $200,000 $661.80
63.Prior to the SOA, Mr Rothnie obtained an AIA quote for $3.5 million of life and TPD (any) inside super and TPD (own) and $200,000 trauma insurance outside superannuation. At the same time Mr Rothnie obtained a quote for $12,802 per month income protection cover with PPS. Also on the same day, 12 April 2017, Mr Rothnie emailed Dr N attaching a quote and saying “at this stage I would be leaning towards PPS Mutual as the recommended insurer …”.
64.On 11 May 2017 Dr N instructed Mr Rothnie to proceed with the insurances. Mr Rothnie sent blank insurance application forms, cancellation forms, duty of disclosure, and fact find acknowledgement documents to Dr N on 15 May 2017, asking him to sign and email the signed documents back at his earliest convenience.
65.A tele-application for life cover of $3.5 million, $2 million TPD (own) and $200,000 trauma cover with AIA was accepted electronically on 31 May 2017. A letter from PPS Mutual confirms an Income Protection Application was submitted on 31 May 2017. Mr Rothnie’s office sent a signature pack to Dr N on 26 July 2017. On 1 August 2017 his office (cc Mr Rothnie) sent blank “sign-here” forms to Dr N. The application forms and client acknowledgement forms are dated 12 April 2017. Dr N’s Income Protection cover was accepted with a start date of 8 August 2017.
66.Dr N's application for insurance with AIA was accepted but with both medical exclusions and premium loadings.
67.Mr Rothnie’s voice file note dated 19 September 2017 includes the following:
[Dr N] had applied for Life, TPD and Trauma flexi-linked and funded from his MLC super fund a couple of months ago with AIA. AIA have completed their underwriting and have offered terms including a bi-lateral shoulder exclusion, a spine exclusion as well as a 50% loading to the trauma cover.
68.In a Record of Advice (“ROA”) dated 19 September 2017 Mr Rothnie recorded under the heading "Section 2: What you want to achieve":
You applied for the cover, as recommended in the SOA dated 20th May 2017, with AIA. The insurer has offered you cover with medical exclusions. We discussed the exclusions and we agreed to submit your details to BT Life for pre-assessment purposes.
I now recommend you apply for Life, Total and Permanent Disability, and Trauma cover with BT Life as they have indicated their willingness to offer the desired cover with no exclusions and at standard rates.
I have recommended you retain all other benefits and options as provided in the original Statement of Advice.
You have acknowledged that you will need to provide full underwriting details again.
69.In the ROA Mr Rothnie recommended that Dr N take out the following insurance cover with BT Life:68
Type of insurance Premium Type Benefit Amount Annual Premium Life Stepped $3,500,000.00 $2,557.25 Total and Permanent Disability Stepped $2,000,000.00 $1,862.00 Trauma Stepped $200,000.00 $824.60 Total $5,243.85 70.Blank application forms for the switch to BT Underwriting were sent to Dr N on 20 September 2017. The BT application was lodged on 21 September.
71.All of this raises a number of issues. It is as well to start by referring to some of the relevant provisions of the Act. Part 7.6 of the Act provides for licensing of providers of financial services which may include financial product advice.[28]
[28] See ss 766A(1) and 776B of the Act.
72.Part 7.7A of the Act is headed “Best Interests Obligations and Remuneration” and, in Division 2, includes s 961B(1), which states:
(1)The provider must act in the best interests of the client in relation to the advice.
73.ASIC’s guidance with respect to this test includes that “A reasonable advice provider should believe that the client is likely to be in a better position if the client follows the advice.”[29] Mr Kendall’s evidence is that the industry accepts this to apply to the advice overall given to the client.
[29] Regulatory Guide 175.235(d); see also s 961E.
74.Section 961B(2) of the Act provides a “safe harbour test” whereby, if all of the steps contained in that provision are followed, then the best interests duty is taken to be satisfied:
(2) The provider satisfies the duty in subsection (1), if the provider proves that the provider has done each of the following:
(a) identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions;
(b) identified:
(i) the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and
(ii) the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client's relevant circumstances );
(c) where it was reasonably apparent that information relating to the client's relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information;
(d) assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice;
(e) if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:
(i) conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and
(ii) assessed the information gathered in the investigation;
(f) based all judgements in advising the client on the client's relevant circumstances;
(g) taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client's relevant circumstances .
Note: The matters that must be proved under subsection (2) relate to the subject matter of the advice sought by the client and the circumstances of the client relevant to that subject matter (the client's relevant circumstances). That subject matter and the client's relevant circumstances may be broad or narrow, and so the subsection anticipates that a client may seek scaled advice and that the inquiries made by the provider will be tailored to the advice sought.
75.Section 961D(1) of the Act provides:
(1) A reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered relevant to advice on the subject matter sought by the client does not require an investigation into every financial product available.
76.Section 961E of the Act deals with what would reasonably be regarded as in the best interests of the client:
It would reasonably be regarded as in the best interests of the client to take a step, if a person with a reasonable level of expertise in the subject matter of the advice that has been sought by the client, exercising care and objectively assessing the client's relevant circumstances, would regard it as in the best interests of the client, given the client's relevant circumstances, to take that step.
77.Section 961G of the Act provides:
Resulting advice must be appropriate to the client
The provider must only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client, had the provider satisfied the duty under section 961B to act in the best interests of the client.[30]
[30] As to the focus of s 961B of the Act (on process or procedure) and s 961G (on content or substance of the advice), see ASIC v NSG Services Pty Ltd [2017] FCA 345, para [21]; ASIC v Financial Circle Pty Ltd [2018] FCA 1644, para [129]; ASIC v Westpac Securities Administration Limited [2019] FCAFC 187, para [405]; and ASIC v AGM Markets Pty Ltd (in liquidation) No 3 [2020] FCA 208, para [221].
78.In respect of Dr N, the Respondent submits, and I accept, the evidence demonstrates that Mr Rothnie failed to perform any reasonable investigation as to why insurance cover of $3.5 million for life and $2 million for TPD was appropriate. A “full needs analysis” was noted as declined in the SOA but, as I have said, I do not accept that as credible. In any event, even if that occurred, I do not see it as relieving Mr Rothnie, as a reasonable financial adviser, of any obligation to enquire as to Client’s levels of insurance.
79.As Mr Kendall explains, understanding Dr N’s request for such a high level of insurance was vital.[31] A reasonable adviser would not simply accept the stated cover without understanding the true basis for it. I also accept Mr Kendall’s evidence that a reasonable adviser would not simply accept this level of cover without even considering the value of associated assets or correct ownership of the insurance as I find occurred in this case.
[31] Exhibit 1, Andrew Neil Kendall’s first report, T26.1 p 4681, paras [37]-[38].
80.An SOA was provided to Dr N more than a month after the initial product advice was given on 12 April 2017. By the time Dr N received the SOA, he had been provided with information, quotes, PDS and recommendations, and accepted Mr Rothnie’s advice without supporting documents relating to risks, commissions payable and conflicts of interest.
81.As Mr Kendall explains, the SOA is the primary document for providing financial product advice particularly to a new client. It outlines to the client: a. the basis of the advice; b. what the advice actually is; c. benefits of the advice; d. risks in the advice; costs of the advice; and e. conflicts of interest (including commissions) which may influence the adviser’s ability to provide appropriate advice. Late provision of an SOA, especially an SOA delivered after the advice has been implemented, denies the client the opportunity to make an informed decision.[32]
[32] Ibid p 4623, paras [120]-[122].
82.Section 946A(1) of the Act provides for the provision of an SOA:
(1) The providing entity must give the client a Statement of Advice in accordance with this Subdivision and Subdivision D.
83.Section 946A(3) provides for “time critical cases”, but the principal obligation as to timing of an SOA is contained in s 946C(1):
(1) Subject to this section, if the Statement of Advice is not the means by which the advice is provided, the Statement of Advice must be given to the client when, or as soon as practicable after, the advice is provided and, in any event, before the providing entity provides the client with any further financial service that arises out of or is connected with that advice.[33]
[33] ASIC alleged there was a breach of s 946C, and this is relevant to the “best interest duty”, but did not rely on the breach as an independent ground upon which the discretion to make a banning order is triggered: Transcript, page 251, lines 20-30.
84.Argument was directed to the meaning of “any further financial service” in this provision. ASIC maintained that having clients sign completed applications for insurance (without necessarily lodging them), prior to the provision of an SOA, was a breach of s 946C(1) of the Act.
85.The Applicant’s submission was that a further financial service, in this context, will only take place when a “final” application for insurance is made, by which the transaction may be concluded and the client is committed. [34] Elsewhere it was submitted that the relevant further financial service is not provided until the policy is completed.[35]
[34] Applicant’s Supplementary Submissions dated 10 March 2010, para [13(b)(ii)].
[35] Ibid, para [10(b) & (c)]; see also para [17(c)].
86.The Applicant argues that financial advisers provide a financial service when they provide financial product advice, or deal in a financial product: s 766A(1)(a), (b). Dealing in a financial product is defined in s 766C(1) to mean, relevantly, “(a) applying for or acquiring a financial product”.
A dealing in personal insurance products is typically preceded by a lengthy application process, and that “no ‘final’ dealing has occurred in respect of a personal insurance product until: (a) the application is complete; (b) the terms of available coverage have been confirmed by the insurer; and (c) the client has paid the first premium, or is contractually committed to doing so.”[36]
The Applicant submits that each of the matters constituting a dealing in s 766C(1) should be read as constituting a concluded dealing in a financial product, and not merely a preparatory step that may possibly lead to such a dealing”.[37]
[36] Applicant’s SIFC, paras [65]-[66].
[37] Ibid, para [71(a)].
87.I do not accept the Applicant’s submission that a further financial service is not provided until the client, as it contends, is bound or committed to a product and no further step on the client’s part is required. In my view lodging an application for insurance is the provision of a financial service or “a further financial service” under s 946C(1) of the Act. Whether completing (but not lodging) an application for insurance can be described as provision of a further financial service is another matter. It depends, I think, on the purpose and context.
88.Having said that, however, I have decided I should not give any weight to the allegations that Mr Rothnie breached s 946C(1) of the Act. First, as referred to above, ASIC does not rely on an alleged breach of s 946C(1), itself a financial services law, for the purpose of triggering a banning order under s 920A(1)(e) of the Act. Instead, it relies on alleged breaches of s 946C(1) as evidence of failure by Mr Rothnie to act in the best interests of his Clients (or some of them) under s 961B(1) of the Act. I accept the Applicant’s submission there is an element of unfairness in this approach including that these alleged breaches were not squarely raised as early as they could have been.[38]
[38] Ibid, paras [24]-[25]
89.Secondly, the additional documents lodged by ASIC after the hearing go directly to the circumstances in which the alleged breaches of s 946C(1) of the Act took place.[39] The documents include advice, including legal advice, sent from GPS Wealth to Mr Rothnie, or circulated to the GPS Wealth network generally, concerning the timing of SOAs, particularly related to applications for insurance.[40]
As ASIC submits, this could be read as condoning a process whereby an adviser does everything (including having clients sign application forms) but lodge the application forms prior to issuing an SOA.[41]
[39] Exhibit 6, Supplementary T Documents, SOA Timing issue, T33.
[40] Ibid, Email to the network, T33.23.
[41] Exhibit 6, T33.17 (“Fold advice”); see also T33.1.
90.ASIC accepts that Mr Rothnie, for a time, may have believed that the practice of having insurance application forms completed, but not lodged, prior to issuing an SOA, did not breach his legal obligations.[42] For Mr Rothnie. however, it is submitted, amongst other things, that the documents support a finding that his licensee’s previous understanding of the law was that an SOA must be issued only before an insurance product is “completed”.
[42] Respondent’s Supplementary Submissions dated 24 February 2021, para [27]. According to ASIC, it is only the services rendered to Mr and Mrs E in 2016, Dr N in 2017, and Drs B and A in 2017, “which could possibly be embarked on with this apprehension” thereby excluding the services previously provided to Mr M (in 2013, 2014 & 2015); Mr and Mrs S (in 2014 & 2015); and Mr E (in 2014). See also Respondent’s Supplementary Submissions in Reply dated 24 May 2021, para [5].
91.I am concerned that no real opportunity was provided to Mr Rothnie to address these issues in evidence. Of course what GPS Wealth or Mr Rothnie thought was permissible does not bear on whether or not a breach of s 946C(1) took place. However, without knowing the circumstances, there is no way of determining what weight if any should be attributed to these alleged breaches when considering the ultimate issues. In the end I have concluded that I should not consider any alleged breaches of s 946C(1) of the Act either in respect of Dr N or the other Clients.
92.As I have said, on 15 May 2017 Mr Rothnie sent Dr N “forms” to sign and email back to him. The forms were blank, uncompleted, signature pages for superannuation, credit card authorities and other documents. Dr N was sent only the final “Sign here” pages of the documents. In August 2017, he was sent further “Sign here” pages for signature. These documents (including to AIA), and client acknowledgement forms, were back-dated to April 2017. Mr Rothnie’s evidence as to why he was sending incomplete documents for signature, including why he somehow thought this was desirable “from a professional indemnity perspective” was illogical and unconvincing.[43]
[43] Transcript pages 132, lines 20-30, and 145, lines 17-36.
93.I am satisfied that Mr Rothnie did not act in the best interests of Dr N in relation to the advice he provided, contrary to s 961B(1) of the Act. In saying this I note again that this provision is not concerned with whether the substance of the advice is in the best interests of the client, but rather with the actions of the adviser in the formulation of the advice and the objective purpose of the adviser in taking that action and giving the advice.[44] Mr Rothnie says he explored with Mr N the basis of the levels of insurance sought. I am satisfied that did not occur. Furthermore, Mr Rothnie cannot be said to satisfy this provision under s 961B(2) of the Act because he did not follow what was required under that provision.
[44] See, for example, ASIC v Westpac Securities Administration Limited [2019] FCAFC 187, per O’Bryan J, para [405].
94.Mr Rothnie contends that the MLC Life/TPD policy Dr N had was on less favourable terms than both the AIA policy initially advised in May 2017 (or earlier) and the BT policy that was subsequently recommended on 20 September 2017.[45] I am satisfied that this is correct. Similarly, I accept that the replacement PPS income protection policy had advantages over the existing MLC income protection policy.[46]
[45] Applicant’s SIFC, para [107] and Applicant’s Submissions, paras [84]-[86].
[46] Applicant’s SIFC, para [108] and Applicant’s Submissions, para [88].
95.Mr Kendall’s opinion was that the advice to Dr N could not be shown to be appropriate under s 961G of the Act, because there was no due consideration of the Client’s goals and there was no reasonable basis for the cover sought. So, while the terms of replacement policies could be said to be superior to the policies they replaced, the cover was unnecessarily excessive. I am not satisfied a reasonable financial adviser could not conclude that the advice was likely to put the Client in a better position.
96.Mr Rothnie had a conflict of interest. He was required to give priority to the interest of the Client. An advice provider must not recommend a product which would create extra revenue for the adviser where additional benefits for the client cannot be demonstrated.[47] I am not satisfied Mr Rothnie did not did not give priority to Dr N’s interests for the purposes of s 961J of the Act.
[47] Exhibit 1, ASIC Regulatory Guide 175, T8, RG 175.403.
97.In summary I am satisfied the only financial services law Mr Rothnie breached in respect of Dr N was s 961B of the Act.
Mr and Mrs E
98.Mr and Mrs E were in their early 50s, with adult independent children. They were each employed (though not as dentists or in the medical sector).
99.Mr E was provided with two SOAs, one in 2014 and another in 2016 which was combined with advice to his wife. Initially Mr Rothnie met Mr E in a park in a regional town on 21 October 2014 during the Client’s break from work. Mr E signed a time critical transaction form and a TAL Accelerated Protection Policy Declaration of the same date, including an acknowledgement he had read the disclosure statement. The insurance was accepted on 23 October 2014.
100.At the time of seeking advice, Mr E held the following policies:
Insurance Type Policy Name Underwriter Benefit Amount Annual Premium Income Protection Futurewise – DI insurance Macquarie $3,312 $3,048.84 Trauma Crisis Recovery Stand Alone Plan AIA
Australia
$157,500 $1,895.04 Term Life/TPD Super Life Cover Plus w TPD AIA
Australia
$1,050,000
$157,500
$3,536.16 Total $8,480.04 101.Mr Rothnie recorded Mr E’s goals and objectives in an SOA dated 24 October 2014:
You advised you wished to reduce your life cover to the amount of $500,000 as you believe this amount will be sufficient for your family's needs in the event of your death.
You advised you wished to cancel your Total & Permanent Disability insurance.
You advised you wish to insure yourself for a sum insured amount of $250,000 for Trauma cover as you believe this amount will be sufficient for your needs in the event of critical illness. You agreed to 'split' this cover between stepped and level premiums.
You advised you wished to retain your existing Income Protection insurance.
I recommended that we conduct a full needs analysis of your insurance to ensure the sum insured amounts meets (sic) your needs, however, you have advised you are happy with the sum insured amounts you have specified at this time.
You wish to review your insurance needs, to ensure that your family is adequately protected in the event of death or critical illness, resulting in lost income.
102.In the 2014 SOA Mr Rothnie recommended Mr E effect the following insurances:
Insurance Type Policy Name Underwriter Benefit Amount Annual Premium Trauma Accelerated Protection – Critical Illness Premier TAL $100,000 $2,923.80 Term Life/ Trauma Accelerated Protection – Life Insurance, Critical Illness Standard TAL $500,000
$150,000
$3,477.72 Total $6,401.52
103.In the 2014 SOA Mr Rothnie explained the following key benefits of his advice and the reasons why the advice met Mr E's objectives including:
Competitive Premiums – The premiums offered are competitive
Policy Features – The policy features are well suited to your circumstances and objectives
104.In cross-examination Mr Rothnie was unable to explain why it was time critical to change Mr E’s existing insurance. He did not refer to the explanation in his SIFC that Mr E’s existing AIA life and TPD policies were due for renewal by 28 October 2014, by which the monthly premiums would rise from $293 to $363.[48] How this increase could be avoided by applying for another policy was not explored.
[48] Applicant’s SIFC, para 120.
105.As Mr Kendall points out Mr Rothnie recommended an additional $100,000 of trauma cover, despite Mr E seeking to reduce his insurance cover. I do not accept the submission that cover of $250,000 was specified by the Client. I agree with Mr Kendall’s view that this could not in the circumstances be described as in the best interests of the Client. Additionally, as Mr Kendall says, and I agree, Mr Rothnie did not explore Mr E’s true insurance needs and conduct an existing insurance needs analysis.
106.I accept the Client was effectively being advised not to reduce his premiums as he wanted, but to increase them. And he was advised to do so at a brief meeting in a park on a work day when he had no opportunity to consider properly the implications of Mr Rothnie’s advice or whether it met his genuine objectives.
107.In cross-examination, Mr Rothnie asserted that whilst reducing premiums might have been an initial goal of Mr E, he changed his mind after discussing product options.[49] Having seen and heard Mr Rothnie, and taking into account the matters referred to, I am unable to accept this or his evidence:[50]
Mr E’s goals and objectives, as described in the 2014 fact find were obtained in an in-depth discussion with Mr E, and were driven by his interests and needs.
[49] Transcript, page 153 at [8]-[15].
[50] Applicant’s SIFC, para 130(a).
108.I do not accept the explanation that Mr E rejected a recommended insurance needs analysis (especially when his overriding desire was to reduce his premium). In cross-examination Mr Rothnie said:
Judging by the time that we met which I believe was around 10:45 in the morning, he would have been at work and would have been on a morning tea break so I’d say at that stage we’ve spoken about a full review and he’s declined it based on that. So that’s the only thing I (indistinct) from my memory but I failed to make a note of it.
109.This does not sit well with Mr Rothnie’s claim there was an “in-depth” discussion. There is also a difference between having “spoken about a full review” and Mr Rothnie “recommending” a full insurance needs analysis, as recorded in his SOA. But, moreover, having seen and heard him, I have to say I do not find Mr Rothnie’s evidence concerning his above dealings with Mr E in 2014 credible.
110.The combined 2016 SOA to Mr and Mrs E was dated 3 March 2016. Mr Rothnie conducted a fact find on 9 February 2016. According to the fact find each of Mr and Mrs E were still working. They owned their own home outright (with an undisclosed value) and an investment property valued at $400,000 (with $180,000 of debt). The fact find had no section to record superannuation details. Mr Rothnie claims to recall he did enquire about Mrs E’s superannuation, and that he recalls it was relatively low. It is surprising nonetheless that nothing was recorded. Overall I am not able to accept his evidence.
111.Mrs E held the following insurance:
Insurance Type Policy Name Underwriter Benefit Amount Annual Premium Term Life Life Cover Plan AIA
Australia
$701,217 $1,493.59
112.For the Applicant it was submitted that, among other things, he demonstrated particular expertise in assisting Mrs E with navigating the consequences of an historic medical issue – both reducing her premium loading from 75% to 50%, and obtaining a form of quasi-trauma cover, where conventional trauma cover had previously been refused to her.
113.In the 2016 SOA, Mr Rothnie recorded the following goals and objectives for Mrs E under the heading "What you want to achieve":
We met on Tuesday 09 February in your home where we discussed your insurance needs. You requested a review of your existing cover as you believe the premiums are getting too expensive.
[Mrs E], you requested I restrict my advice solely to Life, and did not want Total
& Permanent Disability, Trauma or Income Protection cover to be considered at this time. You also did not want to review your Superannuation at this time.
You advised you wish to insure yourself for a sum insured amount of $600,000 for Life cover as you believe this amount will be sufficient for your family's needs in the event of your death.
I recommended that we conduct a full needs analysis of your insurance to ensure the sum insured amounts meets (sic) your needs, however, you have advised you are happy with the sum insured amounts you have specified at this time.
114.Mr Rothnie recommended that Mrs E replace her existing policy with the following:
Insurance Type Policy Name Underwriter Benefit Amount Annual Premium Term Life Life Solutions – Life Cover ClearView $600,000 $959.28
115.Mr Rothnie explained in the 2016 SOA, amongst other things, the following reasons for the policy replacement:86
The premiums are lower for the replacement policy; and More extensive cover was required.
116.Mr Rothnie obtained a quote from ClearView on 10 February. Mrs E signed a ClearView application to release medical information and a ClearView Declaration dated 25 February 2016. Application forms were returned to Mr Rothnie on 1 March 2016. The ClearView application form was submitted on 3 March 2016.
117.Mrs E had a pre-existing medical condition having previously suffered transient ischaemic attacks. Mrs E was offered revised terms for her $600,000 life cover on 14 March 2016. The cover was offered with a 50% loading. Mrs E signed an acceptance for these revised terms on 22 March 2016. The start date of the policy was 1 April 2016.
118.No insurance needs analysis was undertaken and there was no demonstrated reason that the recommended insurance cover was required. I do not accept Mr Rothnie’s contrary evidence that a needs analysis was in fact undertaken with Mrs E.[51] Although the actual cost of Mrs E’s replacement insurance was similar to her existing cover, the sum insured was reduced and the replacement policy was overall more expensive per $1,000 of cover.
[51] Applicant’s SIFC, para 140(a).
119.Mr Rothnie’s evidence was that the “quasi trauma” feature of the ClearView policy made it particularly attractive to Mrs E, who he claims was ineligible for regular trauma insurance due to her medical history. However, I agree with Mr Kendall that this feature of the policy could be detrimental to Mrs E were it to be exercised.[52]
[52] Exhibit 1, T26.1 p 4740-1 para 43.
120.I agree with the submission that replacement of Mrs E’s insurance at a greater cost per unit was not in her best interests, nor did it meet her goal. I accept Mr Kendall’s opinion that a reasonable adviser would not believe that Mrs E was in a better position if she followed Mr Rothnie’s advice. A reasonable adviser would have fully explored why Mrs E needed insurance, especially as her children were independent, her home loan was paid off, and equity had been built up in an investment property.
121.A reasonable adviser would also have compared ClearView and AIA premiums based on the same level of cover (but a lower level than the existing cover). Mr Rothnie opines it likely that the ClearView policy was similar in value to Mrs E’s AIA policy and simply reduced the current cover on a needs basis.
122.I agree with Mr Kendall’s opinion that the advice Mr Rothnie gave Mrs E was not reasonable. There was no demonstrated benefit (to her) in switching her insurance to ClearView. The life to trauma conversion was of limited value and the ClearView policy, as I have said, was more expensive per $1000 of cover. Appropriate conduct would have been to carry out an insurance needs analysis and/or assist Mrs E in adjusting her existing cover.
123.In 2016, in respect of Mr E, Mr Rothnie recorded he was seeking advice because his insurance was getting too expensive and he needed to reduce the cost. Again, I do not accept Mr Rothnie’s contention that Mr E (or Mrs E) declined an insurance needs analysis.[53] It is not credible. It is at odds with the contemporaneous material, including in particular the express request for a review of their insurances to reduce cost. And it is not credible that so many of Mr Rothnie’s Clients, who were seeking advice on their insurance, should be offered and decline an insurance needs analysis (especially if that was what he recommended).
[53] Exhibit 1, T22.66, pp 3553 & 3554.
124.Mr E signed a ClearView Application to release medical information and agreed to the ClearView declaration form dated 25 February 2016. Mr Rothnie obtained quotations from ClearView on 2 March 2016. Mr E’s ClearView Insurance application was also submitted on 3 March, and on the same date his insurance cover (as recommended by Mr Rothnie) commenced: Life $520,000, $100,000 linked trauma and $50,000 stand-alone trauma.
125.As Mr Kendall says, there was no attempt to capture Mr E’s current superannuation balance and any insurances held within it. There was no analysis as to how the insurance Mr Rothnie was recommending was relevant to Mr E’s insurance needs. “As part of the insurance needs analysis, once the goals are determined, the amount to insured (sic) can be reduced by any existing insurance cover. Mr E’s current superannuation could not be ignored.”[54] As Mr Kendall says, and I agree:
[54] Exhibit 1, Andrew Neil Kendall’s report, T26.1 p 4720 para 91.
92. In my opinion:
(a)Mr Rothnie does not use the fact finding appointment to explore Mr E’s actual goals related to insurance. The discussion jumps from a statement that current insurance is too expensive to a product recommendation.
(b)There is no insurance needs analysis which was essential to addressing the concern about insurance cost.
(c)Essential information was omitted from consideration in that Mr E’s superannuation balance and any insurance contained was not considered.
93. In my opinion, Mr Rothnie has failed to conduct fact finding and goal exploration to the standard of a reasonable adviser, and hence fails the best interests safe harbour test at this point.
126.I accept Mr Kendall’s opinion that Mr Rothnie did not follow reasonable processes. He recommended $520,000 of life cover and $150,000 of trauma cover absent a reasonable basis. He recommended such cover without exploring why Mr E needed such insurance.
127.He did not ascertain and thereby neglected Mr E’s existing superannuation and insurance cover (if any). He failed to compare properly Mr E’s existing insurance and taking out insurance at a similar level with ClearView. I do not accept Mr Rothnie’s evidence on these matters.
128.I accept ASIC’s submission that a reasonable adviser could not believe that Mr Rothnie’s advice to Mr and Mrs E placed them in a better position.
129.In summary I accept that Mr Rothnie did not comply with s 961B of the Act, and failed the best interests of Mr E in 2014, and in relation to both Mr and Mrs E in 2016.
130.I am also satisfied on the evidence that the advice Mr Rothnie provided to each of Mr and Mrs E in 2016 was not appropriate under s 961G of the Act. I am satisfied that Mr Rothnie in these circumstances did not give priority to his Clients over his own interest in gaining commissions, contrary to s 961J of the Act.
Mr and Mrs S
131.Mr and Mrs S were in their early 30s, with three young children. Mr S was a self-employed roofer. Mrs S was employed in a part-time clerical/administrative occupation. Mrs S considered unemployment was possible in the short-term. They had significant levels of debt.
132.It was submitted on behalf of the Applicant that in 2014 he assisted them with improving Mr S’s income protection position (despite him being in a high-risk occupation), their child trauma coverage, and their exposure to business cashflow fluctuations (by paying their premiums through superannuation).
133.It was also submitted that in 2015, after Mrs S had ceased working, Mr Rothnie assisted in reducing their insurance costs, by reducing their sums insured, and by finding a cheaper policy for Mr S (paid directly, and not through superannuation). Mr S was offered a policy with a back pain exclusion. It was submitted that Mr Rothnie offered him sound, pragmatic advice, rather than rejecting it out of hand.
134.At the time of seeking the 2014 advice, Mr and Mrs S had the following insurance policies:
Insurance Type
Policy Name
Underwriter
Policy owner
Benefit Amount
Annual Premium
Term Life / Trauma
FutureWise
- Life
Insurance with Trauma
Macquarie
Mr S
$1,066,050
$300,000
$1,071.24
Income Protection
Income Care Plus Accidental Death CommInsure
Mr S
$3,022
$50,000
$1,541.52
Term Life/ Trauma
FutureWise
– Life
Insurance with Trauma
Macquarie
Mrs S
$1,066,050
$106,605
$497.16
$144.60
Trauma
Child Trauma Insurance Macquarie
$53,302
$96
Total $3,350.52 135.Mr Rothnie recorded in an SOA, dated 1 July 2014, under the heading "What you want to achieve" the following goals and objectives for Mr and Mrs S:
You advised you would like to review your current insurance policies with Macquarie Life and CommInsure. You also wished to obtain Total & Permanent Disability insurance for yourselves and Child Trauma Insurance for your youngest 2 children, … .
You advised you wish to insure yourselves for a sum insured amount of
$1,000,000 for Total and Permanent Disability cover as you believe this amount will be sufficient for your needs in the event of your total and permanent disability with an "any" occupation.
You advised you wish to maintain the amount of $1,066,050 for Life cover as you believe this amount will be sufficient for your family's needs in the event of your death.
You advised you wish to maintain the sum insured amount of $319,815 (Child 1) and $106,605 (Child 2) for Trauma cover as you believe this amount will be sufficient for your needs in the event of critical illness.
I recommended you fund the annual premiums from your Sunsuper account on a partial rollover basis and this option may attract a 15% discount on total premiums.
136.In the 2014 SOA, Mr Rothnie noted that Mr and Mrs S have declined an insurance needs analysis.[55] This appears to conflict with other contemporaneous material, and indeed with other parts of the SOA, which show that Mr and Mrs S approached Mr Rothnie in 2014 to undertake a “review” of their insurance. I have previously expressed my view on this aspect of Mr Rothnie’s evidence. I do not accept it.
[55] Exhibit 1, T10.20, SOA dated 1 July 2014, pp 531 & 532.
137.Mr Rothnie recommended that Mr S implement the following insurances:
Insurance Type
Policy Name
Underwriter
Benefit Amount
Annual Premium
Business expense
Accelerated Protection – Business Expense
TAL
$800
$198.84
Term Life/TPD
Accelerated Protection (Super)
– Life Insurance, TPD Rider
TAL
$1,066,050
$1,000,000
$1,719.37
Income Protection
Accelerated Protection (Super)
– Income
Protection Standard
TAL
$3,207
$1,719.37
Trauma
Accelerated Protection – Critical Illness Premier TAL
$319,815
$468.48
Total
$4,106.06
138.Mr Rothnie also recommended that Mrs S implement the following insurances:
Insurance Type
Policy Name
Underwriter
Benefit Amount
Annual Premium
Term Life/TPD
Accelerated Protection – Life Insurance,
TPD Rider
TAL
$1,056,050
$1,000,000
$618.69
Trauma
Accelerated Protection – Critical Illness Premier
TAL
$106,050
Approximate ly $238.08
Trauma
Accelerated Protection – Child Critical Illness TAL
$53,302
(Child)
$108.72
Trauma
Accelerated Protection – Child Critical Illness
TAL
$53,302
(Child)
$108.72
Trauma
Accelerated Protection – Child Critical Illness TAL
$53,302
(Child)
$108.72
Total
$1,182.93
139.Rothnie set out in the 2014 SOA, amongst other things, the following key benefits of his advice and the reasons why the advice met Mr and Mrs S's objectives:
The premiums offered are competitive;
The policy features are well suited to your circumstances and objectives;
[Mr S], due to your occupation, TAL are the only insurer which will offer benefits to Age 65 for Income Protection
140.On 11 June 2014, Mr Rothnie attended Mr and Mrs S’s home where he left a TAL Accelerated Protection Superannuation and Insurance Application Form with Mrs S for her husband to sign. On 12 June 2014, Mr Rothnie emailed Mrs S and asked her to “please send through the pages that you got [Mr S] to sign at your earliest convenience.” The TAL Application dated 11 June 2014 was signed by Mr S. Mr and Mrs S signed a time critical application form dated 27 June 2014 although the reason on the form is left blank.
141.The documents signed by Mr S, including a binding death nomination, were witnessed by Teresea Dean and Joanne Gibson. Ms Dean and Ms Gibson were employees in Mr Rothnie’s office. Mr S’s signature on the documents was not in fact witnessed by them. ASIC contends that Mr Rothnie had his staff purport to witness Mr S’s signature at some time later than 11 June 2014 and not in the presence of Mr S. Mr Rothnie has provided possible explanations of what might have occurred including shifting the fault (if any) to his staff and completely exonerating himself.[56] I find what he has to say implausible and, as with other aspects of his evidence, and based on my assessment of him including his demeanour whilst giving evidence, I do not accept it.
[56] As summarised in the Applicant’s Submissions, para 184.
142.I accept Mr Kendall’s view that rewriting a policy to a new provider introduces new not insignificant risks such as exclusions (for a time) and qualifying periods.[57] Mr Rothnie does not appear to have given any consideration to placing death and TPD cover within Mr S’s existing super.
[57] Exhibit 1, T26.1 p 4759, paras 38-39.
143.I accept Mr Kendall’s evidence that the advice could not be appropriate without demonstrating the other available options such as retaining the existing Macquarie cover.
144.Mr Kendall opines:
“A reasonable advice provider would not switch Mrs S’s cover from TAL without exploring Mrs S’s insurance needs and objectives and considering viable alternatives such as Sunsuper/Macquarie. The only reason I could see Mr Rothnie chose to rewrite the cover is to generate commission.”
145.I accept Mr Kendall’s evidence that the products recommended in the 2014 SOA represented poor judgment and product analysis. The recommended lump sum policies were comparable to the Clients’ existing policies and Mr and Mrs S assumed the risk of switching policies for no real benefit. The income protection policy which was recommended was an overall inferior product which was more expensive than the policy which it replaced.
146.In August 2015 Mrs S approached Mr Rothnie for advice about whether their insurance should be structured so that the policy is owned within or outside of their superannuation fund. What followed was a series of emails in which Mr Rothnie provided financial product advice which Mr Kendall opines, and I accept, should have at least been recorded in a Record of Advice (ROA), if not a new SOA.[58]
[58] Exhibit 1, T26.1 p 5156, para 97; “After providing an initial Statement of Advice, an adviser can continue to give further advice to an existing client if there is no significant change to the client's relevant circumstances and the basis of advice is not significantly different. In this case, a full Statement of Advice does not need to be given but the adviser must keep a Record of Advice (ROA)”: Exhibit 1, Andrew Neil Kendall’s first report, T26.1, p 4604, para 19(i).
147.In Mr Kendall’s opinion, the advice is “incoherent”.[59] It failed to fulsomely set out the consequences of the restructure which was under consideration. In particular, while Mr Rothnie explained that premium costs would increase, he failed to explain that a tax deduction would be lost as a result of the restructure. Ultimately, the outcome of the emails was that Mr and Mrs S decided to proceed. In doing so, their costs of insurance increased and a tax deduction was lost for no benefit.
[59] Ibid p 5152, para 81.
148.Most critically, in response to a further email from Mrs S of 24 August 2015 requesting a review of insurance (due to cost),[60] Mr Rothnie provided further advice which recommended that Mr and Mrs S switch income protection cover to BT.[61] In a tele-interview with BT, Mr S disclosed a recent history of minor work-related lower back pain. As a result, BT was only prepared to offer coverage to Mr S with a lower back exclusion.[62] The exclusion was for disorders of the spine unless in no way aggravated or complicated by a pre-existing spinal disorder. The potential problems or disadvantages that this may pose to Mr S, in his occupation, with his history of lower back pain, are obvious.
[60] Exhibit 1, Email chain dated 26 August 2015, T23.85, p. 3950.
[61] Exhibit 1, Statement of Advice, T27.84.
[62] Exhibit 1, Email from Applicant to Mrs S, T30.13 p. 6194
149.Mr Rothnie informed Mrs S of the outcome of Mr S’s application by an email in which he said that he was “pleased to advise” that Mr S’s application had been accepted, subject to the exclusion. Mr Rothnie explained the operation of the exclusion as follows: “The exclusion will only apply to any pre-existing condition but will cover him if he fell from a roof and hurt his back for example”.[63] Mr Rothnie continued, in the same email, to ask that Mr S sign policy documents if he wished to accept the policy.
[63] Exhibit 1, Email to Client with Terms, T27.82.
150.Ultimately, Mr S proceeded to accept the BT policy, subject to the spinal exclusion. The existing policy which it replaced was not subject to any exclusions.
Mr Kendall opines that there must be extenuating circumstances to warrant a move from a policy without exclusions to a policy with exclusions. I agree that a reasonable adviser would have informed Mr S, at least, of the risk he was taking if he chose to proceed. I agree that Mr Rothnie’s description of the exclusion was not even strictly correct. I accept Mr Kendall’s evidence that the only reasonable course was for Mr Rothnie to advise against acceptance of the policy.[64]
[64] Exhibit 1, T26.1 p 5173, para 164-168.
151.I agree with ASIC’s submission that Mr Rothnie on each occasion failed to act in the best interests of these Clients. Mr Kendall opines, and I agree, that the 2015 advice the BT policy subject to an exclusion was recommended, was “reprehensible” and a “gross failure” of Mr Rothnie to act in the best interests of Mr S, given his personal circumstances and occupation. Mr Rothnie had a conflict in that he had a financial interest in selling the additional insurance product. I accept that that he did not give priority to the interests of his Client. I accept that he advised as he did so as to earn commission.
152.I am satisfied Mr Rothnie did not fulfil the requirement of s 961B of the Act, in relation to both Mr and Mrs S. I am satisfied that the advice he provided on each occasion was not appropriate under s 961G of the Act. I am satisfied that Mr Rothnie, on each occasion, and most obviously but not only in respect of Mr S’s switch in income protection cover, failed to give priority to his Clients, but preferred his own interests contrary to s 961J of the Act.
Mr M
153.Mr M lived and worked on the Gold Coast. He was a recently separated parent in his 50s, living in a rented flat. He had limited assets and two dependent children, one with a serious health condition.
154.In 2013, Mr Rothnie assisted him in obtaining income protection insurance. In 2014, Mr Rothnie assisted him with obtaining life and TPD cover, increasing it from $54,000 to $500,000. In 2015, Mr Rothnie assisted him in changing insurers from TAL and Macquarie to BT. The issues concern 2014 and 2015.
155.A fact find was completed on 14 May 2014 and an SOA prepared by Mr Rothnie dated 15 May 2014 (“2014 SOA”). The 2014 SOA dealt with term life/TPD cover. A new fact find was conducted dated 3 June 2015 and a further SOA prepared dated 9 June 2015 (“2015 SOA”). The 2015 SOA primarily concerned replacement of Mr M’s existing Macquarie income protection and TAL life/TPD cover with BT cover for life, TPD and income protection.
156.As to 2014, Mr Rothnie emailed quotes for life and TPD cover funded via superannuation to Mr M on 12 May 2014. Mr M was planning to retire in 12 years and had a modest superannuation balance. Mr Rothnie met Mr M at 2.30 pm on 14 May at the Gold Coast (as previously referred to). A fact find was completed then, and Mr M signed and Mr Rothnie witnessed a client declaration. Mr M signed a TAL Superannuation and Insurance Fund Application Form dated 14 May 2014. (This is one of the documents witnessed by Mr Dean and Ms Todd.)
157.Also on 14 May 2014, Mr M signed a time critical application form requesting time critical advice. A TAL quote for $500,000 death and TPD (any) was generated on 15 May 2014. A TAL application summary for Mr M was submitted on 20 May 2014.
158.In relation to the subject-matter of the 2014 SOA, I accept that Mr Rothnie failed to follow a process to ensure that he acted in the best interests of Mr M, contrary to s 961B of the Act, and that he in fact failed to act in Mr M’s best interests, contrary to s 961G. Specifically, he:
a.failed to consider the impact of the insurance premiums on Mr M's superannuation balance and future retirement plans;
b.failed to conduct a reasonable investigation into Mr M’s existing Super account. He had income protection cover with a 90-day waiting period for a 2-year benefit. The insured sum was $5,146.78 per month with an annual premium of $330.42. Mr Rothnie failed to consider this existing income protection policy;
c.failed also to consider that Mr M’s existing super had life and TPD insurance for an insured sum of $54,000 for an annual premium of $172.64 per annum;
d.failed to consider if it was necessary to recommend a financial product as opposed to modifying the existing insurance policies to meet Mr M’s needs and objectives. Mr Rothnie failed to obtain an insurance quote through Mr M’s super;
e.did not conduct a reasonable insurance needs analysis. Instead, he accepted $500,000 of life/TPD cover as reasonable without conducting any analysis of Mr M’s needs; and
f.recommended a life and TPD insurance policy to Mr M which was unaffordable in his relatively modest financial circumstances in 2014.
159.I reject the Rothnie’s evidence so far as it is inconsistent with the above. I accept ASIC’s submission that a reasonable adviser could not believe that Mr Rothnie’s advice put Mr M in a better position if the 2014 advice was followed.
160.Mr M sought further advice in 2015. He had received bad reports about TAL paying claims. He was also having issues with Macquarie claims. On 26 May 2015 a BT quote for $500,000 death and TPD (any), and $5,130 per month income protection was generated. Mr Rothnie met Mr M on 3 June 2015. A fact find is dated that day. On the same date Mr M signed several documents including a BT Protection Plan Application form. An application form for life insurance was completed on 4 June 2015. The BT application was lodged on that date.
161.The 2015 SOA is dated 9 June 2015. I accept that Mr Rothnie failed to properly explore Mr M’s goals and conduct an insurance needs analysis. In Mr Kendall’s view an insurance needs analysis was particularly necessary because of Mr M’s limited superannuation and concerns with particular insurers. According to Mr Kendall there was no valid reason to switch Mr M’s income protection insurance from Macquarie to BT. The replacement policy ultimately recommended was considerably more expensive than Mr M’s existing policy.
162.On behalf of Mr Rothnie it was submitted, inter alia:[65]
In accordance with Mr Rothnie’s usual practice, an in-depth exploration of needs was undertaken with client during the course of Mr Rothnie’s initial discussions with the client.
[65] Applicant’s Submissions, para 239(a).
163.I do not accept that that occurred with Mr M or that it did represent Mr Rothnie’s usual practice.
164.In summary I accept that Mr Rothnie did not comply with the best interests obligation in s 961B of the Act in respect of the advices provided in both 2014 and 2015 in respect of Mr M. Additionally, the requirements of s 961G of the Act were not met at either time.
165.Mr Rothnie had a conflict in that he had a financial interest in selling the additional insurance products to Mr M. I find that he did not give priority to the interests of his Client on either occasion, but rather acted as he did in order to gain commission, contravening s 961J of the Act.
Dr B and Dr A
166.Dr B and Dr A were married, dentists, 30 and 29 years respectively, with no dependants. They each held life, TPD, trauma and income protection insurance. They sought out Mr Rothnie’s advice as to a “review” of their insurances.
167.A fact find is dated 16 August 2017 (which Mr Kendall questions as possibly back-dated or amended after the fact, although I make no such finding). An SOA was prepared dated 13 September 2017. According to the Applicant’s submissions, Mr Rothnie recommended that Dr B retain his existing BT income protection insurance, and initially that he replaces his OnePath life/trauma/TPD insurance with PPS Mutual. When medical issues emerged in the underwriting process, Mr Rothnie varied his guidance – Dr B retained his existing cover, pending further medical tests.
168.In respect of Dr A, Mr Rothnie recommended she replace her TAL income protection insurance and OnePath life/trauma/TPD insurance with PPS Mutual policies.
169.ASIC contends that Mr Rothnie contravened s 961B of the Act. He failed to follow a process to ensure that he acted in the best interests of Dr B and Dr A and he failed to act in their best interests.
170.I accept ASIC’s submissions that Mr Rothnie:
a. ignored the Clients’ existing superannuation balance and whether they held insurance cover within their super;
b. did not conduct a reasonable insurance needs analysis;
c. failed to consider if it was necessary to recommend a financial product as opposed to modifying existing policies to meet Dr B and Dr A’s needs and objectives;
d. did not properly investigate or consider the Clients’ goals and the fact that the new products recommended were more expensive than the existing products for at least the next 12 to 15 years;
e. provided documents by email to Dr B comprising just the “sign here” pages for insurance applications, direct debit authorities, and credit card authorisations including a declaration as to the truth of the contents of the document;
f. recommended expensive “true level” policies without there being any evidence that this recommendation was justified or a clear and documented rationale for the recommendation;
g. caused a switch in policies resulting in the Clients losing the benefit of 5 years of level premiums paid, in circumstances where the new policy was significantly more expensive than their existing cover in the first year of cover.
171.In summary I accept ASIC’s submission that Mr Rothnie did not comply with the best interests obligation under s 961B of the Act in respect of either Dr B or Dr A.
172.For the above reasons I accept the requirements of s 961G were not met. Mr Rothnie had a conflict in that he had a financial interest in selling the additional insurance products to Dr B and Dr A. I am satisfied he did not give priority to the interests of his Clients.
Breaches of the banning order in early 2020
173.After the banning order was made, Mr Rothnie continued to have a close involvement in the conduct of the business conducted by Clear FP. As stated above, Clear FP is an authorised representative of GPS Wealth.
174.The breaches alleged by ASIC were reduced to Mr Rothnie’s conduct in respect of Dr S, a specialist medical practitioner.[66] The following facts are taken substantially from ASIC’s submissions which I accept.
[66] Transcript, page 246, lines 15-40.
175.On 13 January 2020, Dr S emailed the general email address for Clear FP Risk noting that she was interested in increasing her income protection insurance.[67] Mr Rothnie responded on 15 January with an email stating “we can definitely assist you with that” and advising that “the sum insured you have requested will require a taxable income of circa $200,000 and I note that you mention a taxable income of around $150,000. Onepath will allow quite a few ‘add backs’ of deductions that your accountant will claim to reduce your income”. He sought copies of tax returns for a Onepath pre-assessment.
[67] Exhibit 1, Email correspondence 13 January 2020 to 11 February 2020, T31.1.
176.After a number of further emails between Dr S and Mr Rothnie, Mr Rothnie confirmed on 3 February 2020 that Onepath had confirmed that they would offer $11,000 per month on an agreed value basis. On 10 February 2020, Mr Rothnie advised that he would follow up Onepath for a quote and that “As your policy is currently in force, you will not be affected by the changes that are coming in at the end of March”. An email exchange followed culminating with Mr Rothnie advising that “the changes coming into effect at the end of March will only apply to new policies started after that date. As your policy is in force already, we will be able to make changes to this policy now and in the future.”
177.On 19 February 2020, Mr Rothnie emailed Dr S saying “thanks for your patience, please find attached the quote to increase your existing Income Protection with Onepath. Please let us know if you would like to proceed with the increase.” A copy of the OnePath quote dated 18 February 2020 provided by Randy Encarnado to Rocky Johnson of ClearFP was attached. On the same day, Dr S responded to Mr Rothnie advising him that she was “happy to proceed” and raising a question about her employment.
178.On the same day, Mr Rothnie responded by email to Dr S advising her that her query about employment was “no problem at all”. He advised that “We will get started on the Statement of Advice and email this to you around this time next week”. He attached an application form and outlined the sections for Dr S to complete and advised her that if she was unsure about any section, to please leave them blank and “we will fill it out for you”. The application form included some details that were to be completed by the adviser although the adviser details were not included in the form. Dr S returned the completed forms to Mr Rothnie on 20 February 2020.
179.At this point, GPS Wealth raised with Mr Rothnie its concerns about his conduct. He ceased doing any work for GPS Wealth after that point.
180.As outlined, Mr Rothnie corresponded with Dr S, including providing her with an insurance quote and providing instructions to her about the filling in of various forms. He answered her questions about pending legislative changes and their effect on her policy. In doing so, he answered the description of providing financial advice to her under s 766C(1) of the Act. His conduct as described above meant that he was providing, or was involved in providing or supervising the provision, of financial services.
181.It was conceded in closing submissions that Mr Rothnie breached the banning order. It was submitted that Mr Rothnie was “insufficiently conscious of the ban”, and that the breach was at the minor end of the scale, inadvertent, caused no harm, and related to a transaction with only a limited advice content to it.[68] It was also submitted that the breach was “of the most minor and inadvertent manner possible.” I do not accept that characterization. Further, it seems to me that Mr Rothnie, with his experience as a financial adviser, would have been well-aware that his conduct was in breach of the banning order.
[68] Respondent’s Submissions, para [5].
Banning order
182.Part 7.6, Division 8 of the Act provides for “Banning or disqualification of persons from providing financial services” and includes, in s 920A, ASIC’s power to make a banning order.
183.Relevantly, s 920A(1) of the Act provides that ASIC may make a banning order against a person where:
(e)the person has not complied with a financial services law (other than section 921E (relevant providers to comply with the Code of Ethics));
(f)ASIC has reason to believe that the person is likely to contravene a financial services law.
184.I have found that Mr Rothnie has failed to comply with each of ss 961B, 961G and 961J of the Act which trigger the discretion to make a banning order under s 920A(1)(e). I consider that a banning order should be made based on his non-compliance as referred to above.
185.ASIC submits there is reason to believe Mr Rothnie is likely to contravene a financial services law in the future. ASIC points to the nature and number of the breaches, Mr Rothnie’s alleged misunderstanding of his duties or obligations under the Act (including as revealed during the hearing), and to his contravention of the banning order. There is a basis therefore, according to ASIC, for the making of a banning order under s 920A(1)(f) of the Act.
186.Mr Rothnie has taken steps, he says, to improve his practices, in order to more readily demonstrate positive compliance, improve his record-keeping, and to mitigate against, as he submits, the possibility of inadvertent human error.[69] Mr Rothnie gave evidence that Clear CP now prevented clients from declining a full insurance need analysis.[70]
[69] Applicant’s SIFC, para [254(e)(ii)].
[70] Transcript page 175, line 35.
187.ASIC submits this, and other proposed reforms, are nothing more than a late and transparent attempt to overcome the obvious conclusion from his cross-examination that he fundamentally did not understand his obligations in providing financial advice.[71] Mr Rothnie in submissions has sought to minimise the contravention of the banning order. As indicated above, I think he understates what occurred, and I do not accept that Mr Rothnie did not appreciate he was breaching the banning order at the time.
[71] Respondent’s Submissions, para 24.
188.Section 920A(1)(f) calls for a positive finding that Mr Rothnie is likely to contravene a financial services law in the future. The matter must be considered as at the time of this decision. There is strength in ASIC’s arguments. Taking all the circumstances into account, however, including Mr Rothnie’s professed reforms, the fact he has been subjected to a banning order for almost two years, and his experience of these proceedings, I am not satisfied there is reason to believe Mr Rothnie is likely to contravene a financial services law in the future.
189.I will therefore consider whether a banning order should be made, and if so for what period, and on what terms, based on the proven breaches of financial services laws under s 920A(1)(e).
190.Chapter 7, Part 7.1, Division 1, s 760A of the Act provides:
The main object of this Chapter is to promote:
(a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and
(b) fairness, honesty and professionalism by those who provide financial services; and
(c) fair, orderly and transparent markets for financial products; and
(e) the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities.
191.I have taken into account the object of Chapter 7. I have also had regard to Regulatory Guide RG98,[72] in particular RG98.54 and the contents of Table 2 containing the factors which may be taken into account in deciding whether to make a banning order. I am satisfied that a banning order should be made.
[72] Exhibit 1, ASIC Regulatory Guide 98, T9.
192.As to the period of the banning order I am mindful of RG 98.55-62 and Table 3. I also note the propositions Santow J said, in Australian Securities and Investments Commission v Adler,[73] could be derived from the cases in determining the length of disqualification (recognising that his Honour was dealing with a different provision). On behalf of Mr Rothnie it is pointed out, amongst other things, that ASIC’s investigations and actions are not the result of any client complaints or of any complaint by his licensee. He is not aware of any other complaints. His client base was dominated by highly educated dentists and doctors. No actual loss suffered by any of the Clients has been identified. Some of the Clients have provided statements supportive of Mr Rothnie.
[73] [2002] NSWSC 483, [56]; see also Rich v Australian Securities and Investments Commission[2004] HCA 42; (2004) 220 CLR 129, paras [41] and [43].
193.Having regard to the Regulatory Guide (RG98), I agree that an appropriate banning order lies within the range of 3 to 10 years. I take into account the purpose of a banning order, principally for the protection of the public, deterring like conduct, and maintaining consumer confidence. Again, I take into account the considerations contained in the ASIC Regulatory Guide. I take into account Mr Rothnie’s personal circumstances including as revealed by his affidavit sworn on 11 October 2019[74] relied upon in his application for a stay and confidentiality order.
[74] Exhibit 3, Applicant Affidavit dated 11 October 2019.
194.I consider that a banning order at the lower end of the scale is appropriate to the circumstances of Mr Rothnie. I conclude that the preferable exercise of discretion is to fix the period of the banning order at three years, that is, the same period as the existing order imposed by ASIC.
195.I have taken into account ASIC’s submissions that the terms of the banning order, which as I have said has been in place now for almost two years, should be widened as permitted under the amendments to s 920B of the Act. It remains a matter of discretion. I take into account, in particular, Mr Rothnie’s conduct since the episode in early 2020 concerning Dr S. In all the circumstances I think that a banning order in the current terms is the preferable decision.
Decision
196.The reviewable decision will therefore be affirmed.
I certify that the preceding 196 (one hundred and ninety-six) paragraphs are a true copy of the reasons for the decision herein of Deputy President I R Molloy
...............[SGD]....................
Associate
Dated: 31 May 2021
Date of hearing:
18 - 22 January & 4 March 2021
Supplementary written submissions lodged 10, 24 & 30 March 2021
Applicant’s Solicitor
Mr Harry Nicolaidis
Applicant’s Counsel
Mr Matthew Peckham
Respondent’s Solicitor
Ms Gloria Wong
Respondent’s Counsel
Mr Matthew Brady QC
Respondent’s Junior Counsel
Ms Anna Bratti
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