Smith and Australian Securities and Investment Commission
[2025] ARTA 1565
•29 August 2025
Smith and Australian Securities and Investment Commission [2025] ARTA 1565 (29 August 2025)
Applicant/s: Bradley Wayne Smith
Respondent: Australian Securities and Investment Commission
Tribunal Number: 2021/3225
Tribunal:Senior Member D Thomae
Place:Brisbane
Date:29 August 2025
Decision:The Tribunal:
(a) Sets aside the decision under review.
(b) Orders pursuant to section 70 of the Administrative Review Tribunal Act 2024 (Cth), the documents filed in the Tribunal, the transcripts and recordings of the hearing, or any documents tendered as evidence in the hearing, are prohibited from publication or disclosure, except by leave of the Tribunal.
................[Sgnd]............................................
Statement made on 28 August 2025 at 2:40pm
Catchwords
ASIC - FINANCIAL SERVICES - BANNING ORDER - Banning order under ss 920A and 920B of the Corporations Act - applicant banned by ASIC from providing financial services for 18 months - whether applicant contravened s 920A(1)(e) - decision set aside
Legislation
Administrative Review Tribunal Act 2024 (Cth)
Australian Securities and Investments Commission Act 2001 (Cth)
Corporations Act 2001 (Cth)Cases
Australian Securities and Investments Commission v Adler [2002] NSWCA 483
Australian Securities and Investments Commission v DOD Bookkeeping Pty Ltd (in liq) [2023] FCA 1622
Australian Securities and Investments Commission v McCormack [2017] FCA 672
Australian Securities and Investments Commission v NSG Services Pty Ltd [2017] FCA 345
Australian Securities and Investments Commission v Ultiqa Lifestyle Promotions Limited (in liq) [2022] FCA 561
Australian Securities and Investments Commission v Westpac Securities Administration Ltd [2019] FCAFC 187
McDonald v Director-General of Social Security (1984) 1 FCR 354
Rich v Australian Securities and Investments Commission (2004) 220 CLR 129
Schroeder and Australian Securities and Investments Commission [2021] AATA 3519
Tarrant v ASIC [2015] FCAFC
Secondary Materials
Australian Securities and Investments Commission Regulatory Guide 98: ASIC’s powers to suspend, cancel and vary AFS licences and make banning orders (November 2022)
ASIC Regulatory Guide 175 ‐ Licensing: Financial product advisers—Conduct and disclosure (December 2012, October 2013, March 2017, June 2021)
Statement of Reasons
On 23 April 2021, a delegate of the respondent, the Australian Securities and Investment Commission (ASIC), made an order pursuant to ss 920A(1)(e) and 920B of the Corporations Act 2001 (Cth) (Corporations Act) prohibiting the applicant, Mr Bradley Smith (Mr Smith), from providing any financial services for a period of 18 months (the Banning Order).[1]
[1] Exhibit 3.
Mr Smith made an application for review to the General Division of the Administrative Appeals Tribunal (the AAT)[2] seeking that the Banning Order be set aside. [3]
[2] On 14 October 2024, the AAT became the Administrative Review Tribunal (the Tribunal). Under the transitional provisions in the Administrative Review Tribunal (Consequential and Transitional Provisions No. 1) Act 2024 (the Transitional Act), applications for review to the AAT that were not finalised before 14 October 2024 are taken to be an application for review to the Tribunal. The Transitional Act gives the Tribunal the authority to continue and finalise any aspect of the review not already completed by the AAT. This decision and statement of reasons is made by the Tribunal.
[3] Exhibit 2.
At the hearing the following witnesses gave evidence:
(a)Mr Smith (the applicant).
(b)Mr M (a client of Mr Smith) (Mr M).
(c)Mr H (a client of Mr Smith) (Mr H).
(d)Mr P (a client of Mr Smith) (Mr P).
(e)Mr C (a client of Mr Smith). (Mr C)
(f)Mr T (a client of Mr Smith) (Mr T).
(g)Mrs S (a client of Mr Smith) (Mrs S).
(h)Ms Jodie McInnes (a financial planner who has audited and mentored Mr Smith since the Banning Order; she additionally gave opinion evidence as an expert financial planner) (Ms McInnes).
(i)Mr Dawson (a financial planner in the employ of ASIC who gave opinion evidence as an expert financial planner) (Mr Dawson).
Mr Smith was represented by Mr Aleksov of counsel, instructed by Roberts Gray Lawyers. Mr Seefeld of counsel, instructed by ASIC, represented ASIC.
The Tribunal admitted into evidence the exhibits which are listed in the annexure to these reasons.
Background
Mr Smith has been a self-employed financial planner since 1991.[4] His practice extends from Rockhampton and to other areas, including Mackay, Brisbane and the Gold Coast.[5]
[4] Exhibit 114 at [7].
[5] Exhibit 113 at [45].
Mr Smith obtained his certification as a financial planner in 2003.[6]
[6] Exhibit 113 at [6]-[7].
Since 31 May 2012 Mr Smith has been an authorised representative of Advice Evolution Pty Ltd (Advice Evolution).[7]
[7] Exhibit 113 at [11].
Advice Evolution holds an Australian Financial Services Licence (AFSL) and operates as financial planning business, independent of institutional ownership.[8]
[8] Exhibit 113 at [11]-[12].
The Tribunal notes that an unusual characteristic of the proceedings was that Mr Smith called 6 witnesses to give evidence in support of him that were the same clients in the 6 client files relied upon by ASIC to establish that Mr Smith had breached his duties to them under the Corporations Act, leading to the Banning Order.
The Tribunal has anonymised the details of the clients and their evidence to protect their privacy and confidential information.
The Tribunal orders pursuant to s 70(2) of the Administrative Review Tribunal Act 2024 (Cth) that the information given to the Tribunal in respect of each of the clients of Mr Smith filed in the Tribunal or tendered as evidence in the hearing is prohibited from publication or disclosure, except by leave of the Tribunal.
Issues for Determination
In the ASIC Closing Submissions (ASIC CS) the issues for determination were framed as:[9]
(a)Is the power under s 920A(1) of the Corporations Act enlivened?
(b)If so, should Mr Smith be prohibited from providing financial services?
(c)If so, for what period should Mr Smith be prohibited from providing financial services?
[9] ASIC CS at [11].
Mr Aleksov did not quibble with ASIC’s characterisation of the issues for determination but contended that ASIC had not met their ‘burden of persuasion’ to the Tribunal that Mr Smith had contravened ss 920A or 920B of the Corporations Act.
Preliminary Issue - Contravention Allegations of non-compliance with ss 947C and 947D of the Corporations Act
On the final day of hearing, Mr Aleksov objected to that part of the ASIC CS, that alleged Mr Smith contravened ss 947C and 947D of the Corporations Act[10], on the basis that it was procedurally unfair to introduce allegations not previously made, or subject of evidence during the hearing.
[10] ASIC CS at [84].
Those sections of the Corporations Act deal with the statutory requirements for the contents of statements of advice (SoA) given by authorised representatives.
To address Mr Smith’s statutory compliance of the SoA in evidence would require each of them to be compared with the particularised requirements contained in ss 947C and 947D of the Corporations Act.
That exercise was not carried out during the hearing and those allegations and particulars were not put to Mr Smith or any other witness during the hearing.
Mr Dawson for ASIC stated in cross-examination in that regard that he was not asked to ‘examine or opine on the adequacy of Mr Smith’s statements of advice’.[11]
[11] Transcript, p 41, line 1 to 4.
ASIC’s submissions do not carry out that necessary comparison and analysis either.
The Tribunal put to Mr Seefeld whether ASIC expected the Tribunal to do it on its behalf.
Mr Seefeld properly conceded that ASIC had not previously raised contraventions of ss 947C and 947D of the Corporations Act against Mr Smith and ASIC did not want to lead the Tribunal into procedural unfairness in making its determination. Nor did ASIC expect that the Tribunal on its own initiative to undertake the analysis required to determine if there was a possible contravention of ss 947C and 947D of the Corporations Act.
The Tribunal is reasonably satisfied that it would be procedurally unfair to Mr Smith for the Tribunal to consider or make any finding in respect to the alleged contraventions of ss 947C and 947D of the Corporations Act and excludes those allegations from its reasons.
Legislative Framework
ASIC has helpfully provided the legislative framework in the ASIC CS.[12]
[12] ASIC CS at [14]-[17], [21]-[24].
The Tribunal does not replicate the provisions of the Corporations Act in these reasons, but in summary:
(a)Chapter 7 of the Corporations Act is concerned with financial services and markets and provides the objects of the chapter is to promote, amongst other things, informed consumers being provided suitable financial products in ‘fair, orderly and transparent markets for financial products’ that reduces systemic risk and provides for ‘fairness, honesty and professionalism’ by financial services providers.
(b)The statutory requirement for financial services providers to act in the best interests of their clients is at s 961B of the Corporations Act. This section has a procedural requirement, not a qualitative one[13]. It provides:
[13] Australian Securities and Investments Commission v NSG Services Pty Ltd [2017] FCA 345
(i)At ss (1) that ‘The provider must act in the best interests of the client in relation to the advice’.
(ii)At ss (2) that the provider satisfies the duty in ss (1) if the provider proves that they have done each of the listed requirements in the sub-section. Described as a ‘safe harbour’ provision, ss (2) means ‘The Provider can effectively prove that their purpose or object was to act in the best interests of the client by doing each of the matters in s 96B(2), each of which is essentially procedural’.[14]
(iii)But, ‘it does not follow from a failure to prove one or more of the matters set out ins s 961B(2) that a failure by the provider to act in the best interests of the client has been established’.[15]
(iv)Rather, a breach of ss (1) ‘depends upon all the circumstances including the nature and extent of the failure to comply with s 961B(2)’.[16]
(c)Section 961G provides that the resulting advice from s 961B must satisfy the conclusion ‘that the advice is appropriate to the client, had the providers satisfied the duty under s 961B to act in the best interests of the client’.
(d)Section 961J requires that priority is given to the client’s interests over those of the provider of advice where ‘the provider knows, or reasonably ought to know, that there is a conflict between the interests of the client and the interests of’ defined parties in ss (1).
(e)ASIC has the power in s 920A(1)(e) of the Corporations Act to make a banning order ‘where a person has not complied with a financial services law’ or ‘ASIC has reason to believe that the person is likely to contravene a financial services law’.
(f)When making a banning order, s 920B of the Corporations Act provides that ASIC may specify the person is prohibited from doing certain conduct and such prohibitions to be for specified periods, or permanently.
[14] Australian Securities and Investments Commission v Westpac Securities Administration Ltd [2019] FCAFC 187 (Westpac) per Jagot J at [301].
[15] Australian Securities and Investments Commission v DOD Bookkeeping Pty Ltd (in liq) [2023] FCA 1622 (DOD Bookkeeping) per Goodman J at [156].
[16] DOD Bookkeeping at [156].
The Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) is also relevant as s 1(2) of the ASIC Act provides:
(a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and
(b) promote the confident and informed participation of investors and consumers in the financial system.
A primary purpose of the ASIC Act is the objective of protecting the public from harm.
Relevantly, in part, to these proceedings, prior to 20 October 2016 there was no obligation under the Corporations Act for providers to keep records in the provision of advice to clients.
Are Contraventions of s 920(1)(e) of the Corporations Act Established
There are 6 client files that must be individually considered to determine if ASIC has established that Mr Smith has breached s 9201(1) of the Corporations Act.
The ‘burden of persuasion’ as to any contraventions of the Corporations Act is said by Mr Smith to fall on ASIC. No such onus arises under the Corporation Act.
The better descriptor of the ‘burden’ on ASIC is that s 56 of the Administrative Review Tribunal Act 2024 (Cth) (ART Act) provides an obligation on ASIC to ‘use their best endeavours to assist the Tribunal to: (a) make the correct or preferable decision in relation to the proceeding; and (b) achieve the objective in section 9’ as the Tribunal ‘stands in the shoes’ of ASIC with all the powers of ASIC to review the decision[17].
[17] s 54 of the ART Act.
The Tribunal is not bound by the rules of evidence[18], but must ensure procedural fairness to the parties to present their case, make submissions and adduce evidence[19].
[18] s 52 of the ART Act.
[19] s 55 of the ART Act.
This is not a controversial approach to decision making in the Tribunal, there are numerous authorities that express the simplified description provided by the Tribunal above with greater eloquence.[20]
[20] McDonald v Director-General of Social Security (1984) 1 FCR 354 per Woodward J at 10.
ASIC called Mr Dawson, who at the relevant time, was a senior analyst in the financial advisors’ team at ASIC, to give evidence to the hearing on the basis he had prepared the reports upon which ASIC relied in making the Banning Order.[21]
[21] Transcript p 16, line 5 to 26.
Mr Dawson was comprehensively cross-examined over 2 full hearing days and made numerous concessions, appropriately, in respect to the allegations against Mr Smith.
In preparing his reports, Mr Dawson had conducted a ‘desk review’ of the client files subject to ASIC’s allegations that Mr Smith had breached his duties under the Corporations Act.
Insofar as being an expert witness, Mr Dawson was credible and fully answered questions asked of him and appropriately conceded matters when evidence was put to him that no longer supported some of the conclusions contained in his reports that Mr Smith had breached the Corporations Act.
Ms McInnes, a financial planner, was called by Mr Smith as both an expert witness, and witness of fact in her role auditing Mr Smith’s client files after the making of the Banning Order. Ms McInnes has extensive experience as a financial planner and was compelling in her evidence as an expert and a witness of fact.
Insofar as there was any inconsistency between the expert evidence of Mr Dawson and Ms McInnes, the Tribunal prefers that of Ms McInnes because her depth of experience in financial planning was significantly greater than that of Mr Dawson. Also, Mr Dawson took a view that certain conduct, such as a provider recommending a client hold more than one superannuation fund, pay insurance premiums and advice fees from superannuation[22] was not in accordance with the ‘best interests’ of clients from a policy perspective.
[22] Dawson supplementary report at [21].
Ms McInnes had a more nuanced view that none of that conduct was prohibited by the Corporations Act and regard had to be given to the relevant circumstances of a client when advising on such recommendations.
The Tribunal preferred Ms McInnes’s evidence in this regard.
Mr Smith also gave evidence and was subject to cross-examination. The Tribunal considered Mr Smith to a credible witness who made appropriate concessions in cross-examination and frankly dealt with his accepted historical shortcomings in record keeping.
Each of the client witnesses confirmed the content of their written statements and were subject to limited cross-examination by ASIC. The Tribunal considered all of them as credible and reliable witnesses.
Mr and Mrs M
Mr and Mrs M (the Ms) received from Mr Smith a SoA, dated 3 June 2014 (the M SoA). The M SoA recommended that they:[23]
(a)Retain their existing superannuation funds (reasons listed are risk and return, quality and costs).
(b)Replace their existing term life insurance policies held with Colonial First State (CFS) in the amount of $954,849 for Mr M and $953,621 for Mrs M with policies to be held with AIA of $1,000,000 each because ‘Premium cheaper at 1 Million’.
(c)Replace their existing term total permanently disabled (TPD) insurance policies held with CFS in the amount of $954,849 for Mr M and $953,621 for Mrs M with policies to be held with AIA of $1,000,000 each because ‘Premium cheaper at 1 Million’.
(d)Establish trauma insurance policies with AIA for each of them in the amount of $50,000 (that amount based on the Ms’ nomination of that level of cover).
(e)Replace Mr M’s income protection insurance with CFS (‘stepped policy’ with $40,488 per annum cover with an annual premium of $2,461) to AIA income protection insurance (‘level’ policy with $100,000 per annum cover with an annual premium of $3,685).
(f)Establish income protection insurance for Mrs M with AIA (level policy with $19,800 per annum cover with an annual premium of $995).
[23] Exhibit 12.
The Ms gave Mr Smith authority to proceed with the recommendations in the M SoA, excepting the recommendation to obtain trauma insurance policies.[24]
[24] Exhibit 17.
On 23 July 2014, AIA declined Mr M’s application for TPD and income protection for medical history reasons.[25] In the same document, Mr M’s application for life insurance was accepted subject to a 75% premium loading.
[25] Exhibit 18.
Mrs M’s application for life, TPD and income protection insurances were accepted on 14 August 2014.[26] Her previous life and TPD insurance policies with CFS were cancelled on 19 August 2014.[27]
[26] Exhibit 76.
[27] Exhibit 78.
ASIC contends that Mr Smith, by the provision of the M SoA, he was in breach of:
(a)s 961B(1) of the Corporations Act because Mr Smith:[28]
[28] ASIC CS at [48]-[63].
(i)failed to adequately identify client objectives;
(ii)did not sufficiently identify the M’s financial situation;
(iii)did not complete an insurance needs analysis;
(iv)did not consider the impact of insurance premiums on superannuation;
(v)did not consider existing superannuation;
(vi)did not consider relevant health status;
(vii)did not investigate existing policies; and
(viii)did not assess the M’s risk profile.
(b)s 961G of the Corporations Act because:[29]
[29] ASIC CS at [65].
(i)Mr Smith’s advice to Mr M to apply for TPD and income protection insurance was inappropriate as such application was declined in circumstances that Mr Smith was in breach of s 961B by not properly identifying and investigating Mr M’s health circumstances.
(ii)Mr Smith’s advice that recommended that Mrs M’s insurance premiums be deducted from her superannuation account because the premiums consumed the entire employment contribution and almost all of the investment growth and because Mr Smith was in breach of s 961B by not properly identifying the impact of insurance premiums upon Mrs M’s superannuation balance.
(iii)The asset allocation in the M SoA was based on an aggressive risk profile in circumstances where the Ms had been previously identified as having a growth risk profile and as such it was inappropriate to advise the Ms to continue to invest their superannuation with an aggressive risk profile.
(c)s 961J of the Corporations Act because:
(i)There is a conflict between the interests of a financial adviser and a client where there is a commission payable to the adviser if the client acts on the advice, citing Downes J in ASIC v Ultiqa Lifestyle Promotions Ltd (in liq) [2022] FCA 561 (Ultiqa) at [87], [90].
(ii)If the Ms acted on the M SoA, Mr Smith would benefit by an upfront commission of $7,591 and ongoing commission of $1,855.
(iii)In the circumstances, Mr Smith knew, or ought to have known, that there was such a conflict between the interests of the Ms and his own interests.
(iv)Mr Smith was in breach of s 961B and s 961G and as such it is open to the Tribunal to also find that Mr Smith preferred his own interests over those of the Ms, in contravention of s 961J.
Mr Smith failed to adequately identify client objectives
An overarching complaint by ASIC of Mr Smith was that prior to 20 October 2016:[30]
Strictly, section 961B does not state that a financial advice provider must record the process taken to comply with the obligation to act in the best interests of the client. However, as a practical matter, it renders the best interests obligation a nonsense for the advice provider to simply state that the process was carried out in his or her head. In those circumstances, significant doubt may arise as to whether the process of the advice provider has sufficiently identified relevant circumstances and carried out necessary investigations in order to meet the obligation under section 961B(1).
[30] ASIC CS at [37].
ASIC contended that the objectives recorded by Mr Smith in a fact finding dated 13 May 2014 as ‘review existing insurance and consider income protection for [Mrs M]’[31] and the further objective in the M SoA of ‘Consider Trauma/Crisis cover’ were ‘not specific, measurable and did not determine why the insurance was required’[32].
[31] Exhibit 14.
[32] ASIC CS at [51].
Reliance for this contention was placed on the evidence of:
(a)Mr Dawson defining the client’s objectives as the starting point of the advice process and this was not focussed on a financial product but those objectives.[33] Mr Dawson stated that when reviewing insurance, the adviser needs to understand why they want to review that insurance.[34]
(b)Ms McInnes that understanding the objectives of the client was ‘absolutely’ important because the adviser needs to understand what the client wants and needs so as to form the basis of the advice.[35]
[33] Transcript p 32, line 10-22.
[34] Transcript p 45, line 21-23.
[35] Transcript p 310, line 9 to 16.
Mr Dawson conceded in cross-examination that he accepted if the Ms had defined their objectives as limited to reviewing existing insurances, consider income protection for Mrs M and consider trauma insurance, then Mr Smith did properly define their objectives.[36]
[36] Transcript page 45, line 5 to 35.
ASIC pressed in closing that the objectives were not adequate as they were ‘not specific, measurable and did not determine why the insurance was required’.[37] Mr Dawson in re-examination said the source of the phrase ‘specific and measurable’ came from the ASIC regulatory guide (RG175[38]) and said:[39]
If you are unable to identify exactly what the client is coming to ask you or achieve in terms of the goal, if that’s – it’s the premise of the (indistinct). It’s the starting point. If you get that wrong, it is likely that the advice would be misdirected or inappropriate or incorrect. So it is the most important part of the advice process and needs to be done properly.
[37] ASIC CS at [51].
[38] Exhibit 98.
[39] Transcript p 202, line 38 to 43.
Mr Smith contends that:[40]
[40] Applicant’s Closing Submissions dated 26 April 2025 (Applicant’s CS) at [7]-[11]; [22]-[26].
(a)ASIC’s language of Mr Smith’s alleged breaches of s 961B(1) does not ‘map onto the statutory language of s 961B(1), nor the “safe harbour” steps in s 961B(2)’.
(b)There was no statutory obligation at the time of the M SoA for Mr Smith to keep records in respect of advising clients and that Mr Smith in providing advice did the intellectual exercise ‘in his head’ and did not reduce that necessarily to a document.
(c)The changes to the Corporations Act requiring record keeping from 20 October 2016:
are immaterial to the allegations of past breaches of the law, and in relation to any risk of future breaches of the law, ASIC have not sought to make a case that Mr Smith’ past lawful conduct now precipitates a risk that he will be non-compliant in light of the changes to the law.
(d)The statutory requirement in s 961B(2)(a) was to identify the objectives of the client:
that were disclosed to the provider by the client through instructions.
(e)ASIC was obliged to prove that the M’s had provided in their instructions some objective to Mr Smith that was not included in the M SoA. ASIC cannot prove that fact.
(f)Nothing in Mr M’s evidence at the hearing, including cross-examination by ASIC:
indicated that Mr Smith as the provider failed in his duty under s 961B(1) at all, let alone failed to identify [Mr M’s] objectives.
(g)The allegation is:
unintelligible as an allegation of a contravention of s 961B(1), and … by reference to s 961B(2)(a) – ASIC have not identified anything that Mr (or Mrs) [M] had as objectives that was not identified.
It is fair to say that the paucity of Mr Smith’s record keeping, a matter he accepts, regardless of there being no statutory obligation prior to 20 October 2016, has landed him in these proceedings for precisely the reasons ASIC contends, namely that it has raised doubt that Mr Smith has met his best interests duty to his clients.
The Tribunal is reasonably satisfied that Mr Smith did not breach his duty in s 961B(1) of the Corporations Act in respect to the identification of objectives in the M SoA because:
(a)The requirements of s 961B(2) are procedural[41] and not qualitative.
(b)The Tribunal accepts that for a provider to rely on the ‘safe harbour’ of s 961B(2) to meet the duty in s 961B(1), that a proper consideration is compliance with the relevant ASIC regulatory guide.
(c)There was no statutory obligation at the time of the M SoA for Mr Smith to keep records in respect of his provision of personal financial advice. The lack of record keeping requires that further evidence is necessary to determine whether Mr Smith has met his duty to act in the best interests of the Ms.
(d)The Tribunal does not accept that to meet the best interests of the client in s 961B(1) the provider is obliged to provide objectives that are specific, measurable and why the insurance was required because such an obligation is inconsistent with the clear language in s 961B(2)(a).
(e)The undisputed evidence before the Tribunal was that the objectives as stated in the M SoA accorded to the instructions provided by the Ms and they were not asking Mr Smith to go beyond them.
(f)The objectives in the M SoA identified the objectives that were disclosed to Mr Smith in the Ms’ instructions to him.
[41] per Westpac.
Mr Smith did not sufficiently identify the Ms’ financial situation
ASIC concedes the M SoA included the Ms’ assets, liabilities and income, but did not include their expenses.
ASIC contends the failure to include expenses results in Mr Smith being ‘unable to determine the [Ms’] cash flow position and therefore whether the premiums for the trauma policies could be afforded’[42], thereby breaching his duty to act in the best interests of the Ms.
[42] ASIC CS at [52].
Mr Smith contends that:[43]
(a)ASIC’s language of Mr Smith’s alleged breaches of s 961B(1) does not follow the statutory language of s 961B(1), nor s 961B(2).
(b)The statutory requirement in s 961B(2)(a) was to identify the financial situation of the client ‘that were disclosed to the provider by the client through instructions’.
(c)ASIC ‘does not identify anything that has been disclosed to the provider the by the client through instructions, in relation to the client’s financial situation, which the provider has not identified (or recorded)’.
(d)The scope of s 961B(2)(c) that provides ‘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’ read with the definition of ‘the client’s relevant circumstances’ (s 961B(2)(b)(ii)) are words of limitation – and it is contended that ‘the provider does not have any free ranging duty to inquire, but only to the extent of the advice sought on a topic’.
[43] Applicant’s CS at [27]-[28].
The Tribunal does not accept Mr Smith’s contention that in a provider determining the ‘client’s relevant circumstances’ that they do not have ‘a free ranging duty to inquire, but only to the extent of the advice sought on a topic’.
The Tribunal construes that the statutory duty to inquire to the ‘client’s relevant circumstances’ obliges the provider to consider the ‘subject matter of the advice that has been sought’ (s 961B(2)(b)(i)), and ‘the client’s objectives, financial situation and needs of the client’ reasonably relevant to the advice sought (the Client Circumstances Duty).
Where it is reasonably apparent the provider does not have the necessary information to satisfy the Client Circumstances Duty, then the provider is obliged to make reasonable inquiries to obtain the necessary information to meet that duty (s 961B(2)(c)).
However, the Tribunal says what are ‘reasonable inquires’ to obtain the information to satisfy the Clients Circumstance Duty are to be assessed on the facts before the Tribunal and not on the assumption of an absolute duty to not provide the advice sought where the client, on an informed basis, does not provide that information.[44]
[44] cf Mr Dawson, transcript p 52, line13 to 15.
Undoubtedly there is risk for a provider in providing advice without all of a client’s relevant circumstances (cannot rely on safe harbour of s 961B(2)), but such advice does not,, as a matter of course, constitute a breach of duty to act in the client’s best interests.[45]
[45] This is consistent with Westpac and DOD Bookkeeping.
The Tribunal is reasonably satisfied that Mr Smith did not breach his duty in s 961B(1) of the Corporations Act in respect to the Ms’ statement of their financial situation in the M SoA because:
(a)As found above, the requirements of s 961B(2) are procedural and not qualitative.
(b)As found above, there was no statutory obligation at the time of the M SoA for Mr Smith to keep records in respect of his provision of personal financial advice. The lack of record keeping requires that further evidence is necessary to determine whether Mr Smith has met his duty to act in the best interests of the Ms.
(c)Mr Smith’s written evidence was that he did not include details of the Ms expenses when he completed the fact finding and he was instructed by the Ms to provide quotes on insurance costs for them to assess the costs and their capacity to meet them. Mr Smith states the Ms ‘specifically did not wish to complete updated budget information and I complied with their instructions’[46].
[46] Exhibit 113, annexure A, at [19]- [20]; see also Exhibit 115, at [42].
(d)Mr M in his written statement states:[47]
[47] Exhibit 123.
We never used to talk to Brad about our financial position, because he was not giving us financial advice. Brad only dealt with our superannuation. Details about our daily budget was never his job.
…
When I had an accident, I became self-employed, that is when I told Brad that I wanted income protection, but I wanted the cost of that to come out of my superannuation. I did not want to get billed to get the coverage. I knew that money would be coming out of my superannuation to pay for the extra cover.
Because I had a work accident, changing insurance there was an issue for me. We looked at a few options, one came back with the premium set really high, the other one Brad recommended he told me that they would not touch me, so on Brad’s recommendation I stayed where I was in terms of insurance cover.
I remembered speaking with Brad about an agreed value policy versus an indemnity policy. As I did not want to pay more for insurance, we decided on an indemnity policy.
(e)ASIC did not cross-examine Mr M as to whether he had provided Mr Smith instructions on their expenses.
(f)The undisputed evidence before the Tribunal that the Ms did not, or want to, provide instructions to Mr Smith in respect to their expenses, and further that any recommended insurance premiums were to be paid from superannuation and not funded from their income.
(g)The Tribunal is reasonably satisfied that Mr Smith cannot rely on the safe harbour of s 961B(2).
(h)The Tribunal is reasonably satisfied Mr Smith met his Clients Circumstances Duty because the Ms expressly limited the information available to Mr Smith to prepare the M SoA in an informed way.
Mr Smith did not complete an insurance needs analysis
ASIC contends that Mr Smith breached his duty to the Ms by not conducting an ‘insurance needs analysis’ when providing the M SoA because by not doing so, Mr Smith was not considering the Ms’ ‘relevant circumstances’ in identifying what the Ms ‘wanted to protect and what assets and other policies were in place which could be used to reduce insurance costs’.[48]
[48] ASIC CS at [53].
Mr Dawson answered in cross-examination to the question ‘what is an insurance needs exactly?’ as follows:[49]
So you look at – usually it’s tied back to goals and objectives. And say for example let’s make it really simple: income protection, right. You would just need to know how much the person’s earning, right. Now, if you’ve going to do an insurance needs analysis for life cover or total permanent disability cover, you would go through and have a look at what are you actually covering for. What – you know, if this insurable event happens, does it mean you got a loan, did you need to pay this loan out, are there dependents. You know, if you’re not here, then how are the people that are still here, how are you going to be able to support them. Or if you’re totally and permanently disabled, how are you going to support yourself. And so it’s understanding what that number potentially looks like, and then, you know, substantiate to the client, ‘Look, I’ve thought about this. You’re concerned about’ – you know, ‘If you’re not here, you’ve got kids, you’ve got a loan, you want to leave something behind. This is where that number’s come from’. And this is why I recommend that you would insure for, you know, $500,000 of life cover.
[49] Transcript p 56, line 19 to 34.
Mr Dawson agreed that the exercise to conduct the insurance needs analysis could be done by an oral conversation and where amenable to a ‘simple answer’ an amount of insurance cover could be determined and that amount put into the SoA.[50] Mr Dawson maintained that the insurance needs analysis required to be documented in the ‘fact finding’ and included in the SoA[51].
[50] Transcript p 55-56, line 36 to 47, 1 to 19.
[51] Transcript p 38, line 3 to 24
Mr Smith contended that the Ms determined their insurance needs on the basis ‘that their current insurance was sufficient but they wanted to see if it could be obtained more cheaply’.[52]
[52] Applicant’s CS at [31].
The Tribunal is reasonably satisfied that Mr Smith did not breach his duty in s 961B(1) of the Corporations Act in respect to the requirement to provide the Ms an ‘insurance needs analysis’ because:
(a)As found above, the requirements of s 961B(2) are procedural and not qualitative.
(b)As found above, there was no statutory obligation at the time of the M SoA for Mr Smith to keep records in respect of his provision of personal financial advice. The lack of record keeping requires that further evidence is necessary to determine whether Mr Smith has met his duty to act in the best interests of the Ms.
(c)As discussed above, the Tribunal is reasonably satisfied that Mr Smith cannot rely on the safe harbour of s 961B(2).
(d)ASIC did not cross-examine Mr M as to the instructions he had provided Mr Smith on their insurance requirements.
(e)The undisputed evidence was that it was the Ms who determined the level of insurance they required and that they were satisfied their current level was adequate but would consider a proposal that the same level of cover ‘can be done better or cheaper’.[53]
(f)The Tribunal is reasonably satisfied Mr Smith met his duty because the Ms expressly limited the scope of the advice to Mr Smith to prepare the M SoA in an informed way and there is nothing in the evidence, inferred or otherwise, that the levels of insurance cover were not in the best interests of the clients.
[53] Exhibit 126, at [3(i)], [5].
Mr Smith did not consider the impact of insurance premiums on superannuation
ASIC contends that Mr Smith failed in his duty in considering the impact of insurance premiums on the Ms’ superannuation because he did not: [54]
undertake a projection of the impact of premiums on the clients’ superannuation balances and has further stated that he certainly would undertake such a projection if giving advice to clients now’.
[54] ASIC CS at [54].
Mr Dawson’s evidence was that: [55]
So what I would suggest is sometimes it’s important to actually consider how much impact insurance would have on balance or time in savings and then put back to the client to say, ‘Yes, we’re putting it in your super, but this is the impact on your super fund’.
[55] Transcript p 56, line 36 to 40.
ASIC contended that ‘the impact on Mrs M’s superannuation balance was notable’[56].
[56] ASIC CS at [54].
Mr Smith contended that the M SoA provided the annual premiums that applied to the recommended insurance policies and ‘even a modestly intelligent person can work out the impact of premiums on their superannuation balance’.[57] Further, it was contended that nothing in s 961B required projections to quantify the reduction in superannuation.
[57] Applicant’s Submissions dated 26 April 2023 (Applicant’s Submissions) at [38].
The Tribunal asked Ms McInnes, as a financial planning expert, whether it was a breach of the best interest duty in s 961B for an advisor to recommend insurance policies to be held and paid from a superannuation fund. She said no. In re-examination she agreed that was subject to the objectives and circumstances of the client.[58]
[58] Transcript p 317, line 19 to 25, line 40 to 46.
Mr Dawson in cross-examination accepted that it was reasonable that it was possible to be in the best interest of the Ms to ‘take a substantial hit to lower super fund balance now and consequently for the future in exchange for insurance today and the peace of mind that might bring’[59].
[59] Transcript p 59, line 41 to 45.
The Tribunal is reasonably satisfied that Mr Smith did not breach his duty in s 961B(1) of the Corporations Act in respect to the recommendation in the M SoA that insurance premiums be paid from their superannuation accounts because:
(a)As found above, the requirements of s 961B(2) are procedural and not qualitative.
(b)As found above, there was no statutory obligation at the time of the M SoA for Mr Smith to keep records in respect of his provision of personal financial advice. The lack of record keeping requires that further evidence is necessary to determine whether Mr Smith has met his duty to act in the best interests of the Ms.
(c)As discussed above, the Tribunal is reasonably satisfied that Mr Smith cannot rely on the safe harbour of s 961B(2).
(d)Mr Smith’s written evidence was that he did discuss with the Ms the impact on their superannuation balances by having insurance premiums drawn from inside their superannuation accounts. Mr Smith states the Ms: [60]
looked at it from a different perspective, that the level of cover was definitely required and if not funded via their super they would not have it. This was their priority. [Mr M] had advised he had made lump sum contributions to his super which more than covered the insurance premium, whilst [Mrs M] had employer contributions being made.
(e)ASIC did not cross-examine Mr M as to whether Mr Smith had the discussion with him above.
(f)The undisputed evidence before the Tribunal that the Ms understood the effect of insurance premiums being paid from their superannuation accounts and accepted that on an informed basis.
(g)The Tribunal is reasonably satisfied Mr Smith met his duty because the Ms expressly instructed Mr Smith that they wanted any insurance premiums to be paid from their superannuation in an informed way and there is nothing in the evidence, inferred or otherwise, that such instructions were not in the best interests of the clients.
[60] Exhibit 126, at [6].
Mr Smith did not consider existing client superannuation
ASIC contends that Mr Smith ‘did not carry out an adequate investigation to determine whether other superannuation products maybe suitable’[61]. ASIC relies on Mr Smith’s evidence that he only examined their existing superannuation fund in respect of their insurance requirements.
[61] ASIC CS at [55].
Mr Smith contends a broader review of the suitability of the Ms superannuation fund was beyond the scope of the advice being sought and ‘ASIC’s opinion about whether the client should have sought that advice is immaterial’.[62]
[62] Applicant’s CS at [35].
The Tribunal is reasonably satisfied that Mr Smith did not breach his duty in s 961B(1) of the Corporations Act in respect to him not conducting a broader review of the suitability of the Ms superannuation beyond their insurance requirements because:
(a)As found above, the requirements of s 961B(2) are procedural and not qualitative.
(b)As found above, there was no statutory obligation at the time of the M SoA for Mr Smith to keep records in respect of his provision of personal financial advice. The lack of record keeping requires that further evidence is necessary to determine whether Mr Smith has met his duty to act in the best interests of the Ms.
(c)As discussed above, the Tribunal is reasonably satisfied that Mr Smith cannot rely on the safe harbour of s 961B(2).
(d)Mr Smith’s written evidence was that: [63]
The Ms asked me to examine their current product to determine whether or not the insurance coverage they wanted could be funded by their current superannuation.
…
I had in my mind the knowledge of current superannuation funds available in the market and in doing so that I knew their superannuation was appropriate and there was no need for me to revisit the super fund.
(e)ASIC did not cross-examine Mr M in respect to the above.
(f)The undisputed evidence before the Tribunal that the Ms did not ask Mr Smith to conduct a broader review of their superannuation fund, rather to specifically review for suitability for insurance purposes and Mr Smith did that as well as conducting a mental exercise in satisfying himself that their existing superannuation fund was appropriate.
(g)The Tribunal is reasonably satisfied Mr Smith met his duty because the Ms expressly instructed Mr Smith to limit his scope of advice to insurance in an informed way and there is nothing in the evidence, inferred or otherwise, that such instructions were not in the best interests of the clients.
[63] Exhibit 126, at [7].
Mr Smith did not consider relevant health status of clients
ASIC contends that in a provider identifying the client’s health ‘relevant circumstances, carry out an assessment of those circumstances’ and then providing advice, that ‘process necessarily occurs before the advice is given’.
ASIC says the breach is because Mr Smith’s:[64]
process was to give the advice and then allow the insurance provider to seek and assess the relevant health circumstances during the insurance application process. That is, after the advice has been provided and while the recommendation are being implemented.
[64] ASIC CS at [57].
Mr Dawson’s evidence was that:[65]
the appropriate course in these circumstances was for the Applicant to carry out a pre-assessment with the underwriter which would then inform the provision of the financial advice and avoid the risk of switching to an inferior policy or affecting the future ability to claim.
[65] Exhibit 127 at [14(f)], Dawson supplementary report at [28]-[31].
Mr Smith contends that:[66]
(a)Mr Smith gave evidence that insurers and their underwriters have their own approach to health issues, and thus an efficient approach is to make the application for the financial product and let the insurer/underwriter trigger their health assessment process, and see what ‘comes back’, deal with it at that stage; and
(b)In substance, there is no relevant difference identified by ASIC as between these two approaches. There is a faint suggestion in CS [58] that a person might somehow end up with an inferior policy, although that it is not said how this might come about. Overall ASIC’s position is that Mr Smith’s practice was not what ASIC considers optimal, but ASOC does not identify how Mr Smith’s practice contravenes the law.
[66] Applicant’s CS at [37]-[38].
ASIC’s contention about the relevant health status of clients and how to approach an application to an insurer seems to the Tribunal to be a distinction without a difference.
The critical duty to act in the client’s best interests is to advise the client about how to achieve the objectives they have provided. How an insurer/underwriter approaches the acceptance of risk of any individual applicant is outside the control of the provider.
A health pre-assessment might flag concerns or potential risks for the non-acceptance of an application, but the Tribunal does not accept that it is a binary approach to the process of applying for insurance, and certainly not one in the present circumstances that would amount to a breach of the duty to act in the clients’ best interests.
Put another way, it would be imprudent for a provider, having conducted a health pre- assessment and considering that there is risk in whether an insurer/underwriter would accept that state of health circumstances, to not proceed to engage with an insurer/underwriter, as the provider could not with any degree of certainty determine what the insurer/underwriter might consider acceptable risk from time to time.
There is no suggestion, or inference, that Mr M, by going through the application process, albeit unsuccessfully, he was ever not without his existing insurance, or there was a negative consequence of his application.
In fact, Mrs M’s existing policy was only cancelled after acceptance by the insurer for the new policy. That approach seems to the Tribunal to be the correct one.
The Tribunal is reasonably satisfied that Mr Smith did not breach s 961B by the way he advised the Ms to apply for insurance as contained in the M SoA.
Mr Smith did not investigate existing client policies
ASIC contends[67] that, whilst Mr Smith did a like for like comparison ‘in his head’, of the Ms’ existing insurance policies and the ones recommended in the M SoA, and the M SoA provides some comparison, but Mr Smith, according to Ms McInnes was required to make:[68]
a comparison between not only the fees, but also the features and benefits of those two products. This needed to be done as a “like for like comparison” to ensure that the adviser was “comparing apples to apples, as opposed to apples and pears.
[67] ASIC CS at [59]-[60].
[68] Transcript p 313, line 4 to page 314, line 5.
Mr Dawson’s evidence was on all fours to that of Ms McInnes and was required for the client to make an informed decision about the advice.
ASIC contends that the Tribunal should not be satisfied that Mr Smith’s comparison ‘in his head’ was sufficient to meet his duty under s 961B(1).
Mr Smith contends that:[69]
(a)Mr Smith did do a comparison but did not reduce all of that comparison to writing.
(b)ASIC does not suggest that Mr Smith is lying and the Tribunal should be satisfied that ‘Mr Smith’s mental exercise of comparison is sufficient to meet s 961B(1)’.
(c)‘Mr Smith does not have a duty to satisfy ASIC, or the Tribunal, of anything. It is for ASIC to satisfy the Tribunal that Mr Smith did not compare the Ms existing products with the recommended new products’.
(d)ASIC acknowledges that Mr Smith did set out a comparison in the M SoA and he ‘obviously “investigated” the existing policy to this extent. There is no reason to doubt Mr Smith’s evidence that he otherwise held a general fund of knowledge about products in the market and drew on this in giving his advice to the [Ms]. It is notable that Ms McInnes opines that Mr Smith is knowledgeable about such matters’.
[69] Applicant’s CS at [39]-[42].
The Tribunal is reasonably satisfied that Mr Smith did not breach his duty under s 961B(1) in investigating the Ms’ existing client policies because:
(a)as found above, the requirements of s 961B(2) are procedural and not qualitative;
(b)as found above, there was no statutory obligation at the time of the M SoA for Mr Smith to keep records in respect of his provision of personal financial advice. The lack of record keeping requires that further evidence is necessary to determine whether Mr Smith has met his duty to act in the best interests of the Ms;
(c)the Tribunal is reasonably satisfied that Mr Smith cannot rely on the safe harbour of s 961B(2) where he did not reduce to writing in the M SoA a full comparison of the insurance products.
(d)the Tribunal finds as a fact that Mr Smith:
(i)had knowledge of the products, he was advising on in the M SoA. That finding is consistent with the unchallenged evidence of Mr Smith and Ms McInnes’s opinion;
(ii)did a comparison ‘in his head’ of the products he was advising on in the M SoA; and
(iii)reduced some of the mental comparison he did into writing in the M SoA.
(e)The Tribunal is reasonably satisfied Mr Smith met his duty because there is no evidence, or any inference, that the comparison that is contained in the M SoA is wrong or missing particular details that, if included, would have shown that the Ms would have been better informed of any difference between the insurance policies.
Mr Smith did not assess the Ms’ risk profile
ASIC contends that Mr Smith did not properly assess the Ms’ risk profile because:[70]
(a)The M SoA records the risk profile of the Ms as ‘Aggressive’ and consistent with that profile ‘recommends an asset allocation of 3.41% of defensive assets and 96.59% in growth assets’.
(b)Mr Smith’s evidence was that the risk profile in the M SoA was derived from a 2008 SoA[71] (2008 SoA).
(c)The 2008 SoA states ‘I have established your approach to investing (that is, risk profile) as Growth’ and provides the appropriate strategy for that risk profile is 20% income assets and 80% growth assets.[72]
(d)Mr Dawson’s evidence was that Mr Smith ‘ought to have undertaken a new risk profile assessment which documents and clearly confirms the clients risk tolerance before making investment recommendations’.[73]
(e)As that did not occur in the M SoA, the recommendations were inconsistent with the risk profile in the 2008 SoA.
[70] ASIC CS at [61]-[63].
[71] Exhibit 114, annexure BSW5, p 173.
[72] Exhibit 114, annexure BSW5, p 153.
[73] Exhibit 127, Dawson Report at [14(i)]; Dawson Supplementary Report at [38]-[41].
Mr Smith contends that:[74]
(a)‘It is unclear what the actual concern is’.
(b)‘The M SoA sets out a recommended allocation of assets as between the various investment classes – Cash, Australian Equities, International Equities, Property Securities. “Defensive Assets” must be a reference only to cash, whereas “Growth Assets” must be a reference to the remaining categories’.
(c)Mr Smith’s evidence was that the allocation was not within his control as it was the product provider’s allocation.
(d)Mr Smith was not advising on the Ms’ superannuation choices and only whether it was compatible with the insurance recommendations.
[74] Applicant’s CS at [43]-[45].
Mr Smith stated that the 2008 SoA ‘provided for an aggressive risk profile and there was no alteration in instructions to this profile’[75]. Mr Smith restates this evidence in his later affidavit.[76]
[75] Exhibit 113, annexure A, at [37].
[76] Exhibit 114, at [53(c)].
Mr Smith was cross-examined on the discrepancy between the risk profile as disclosed in the 2008 SoA of ‘growth’ and his evidence that it was ‘aggressive’ as documented in the M SoA. When taken to the 2008 SoA, Mr Smith agreed that it did disclose a risk profile of ‘growth’ but there was documentation that the Ms wanted it to be ‘aggressive’.[77] Mr Smith was not asked about the Ms risk profiles in re-examination.
[77] Transcript p 237, line 35 to 34, p 238, line 1-11.
Mr M in his written statement and in oral evidence did not speak to risk profiles.
Mr Smith in the 2008 SoA provides what that proportional asset allocation should be for a ‘growth’ risk profile when determining their risk profile[78]. Later in the 2008 SoA it states ‘In our discussion on Risk versus Return you indicated that you were prepared to accept a higher risk rating of Aggressive for your Superannuation portfolios. The recommended portfolio falls within the acceptable variances for that of an Aggressive investor’[79]. The proportional asset allocation for the recommended CFS superannuation fund is 4.46% cash and the remainder in shares and property.
[78] Exhibit 114, annexure BWS5, at 11.
[79] Exhibit 114, annexure BWS5, at 32.
The M SoA has a similar proportional asset allocation to that as provided in the 2008 SoA, that being an ‘aggressive’ risk profile of less defensive assets and more growth assets.
As found above, the Tribunal does not accept that Mr Smith was restricted in his Clients Circumstances Duty from making inquiries about the circumstances of the Ms. As such, it was reasonable and prudent for Mr Smith to have reviewed any previous SoA, fact finds and client instructions to ensure that they were consistent with the recommendations he was to make in the M SoA, and where there was a difference, he was obliged to make inquiries of the Ms.
The dissonance in the 2008 SoA between the assessment that the Ms had a ‘growth’ risk profile and later in the same document that they had an ‘aggressive’ risk profile was such that it is incongruous to contend that Mr Smith had no duty to confirm the clients risk profile as this is a fundamental requirement for a provider to undertake.
There is no evidence that the Ms understood the dissonance in risk profile contained in the 2008 SoA as then applied to the M SoA.
That was Mr Smith’s principal obligation when acting in the best interests of the Ms. If the superannuation fund that the Ms were invested in did not align to their risk profile, which was not clear in the 2008 SoA, he was obliged to either get their informed consent to remain at a higher risk profile or provide recommendations for a superannuation fund that aligned to their accepted risk profile.
At the very least, the failure is a carelessness on Mr Smith’s part in reviewing the 2008 SoA and applying that to his recommendations in the M SoA. Mr Smith acknowledges as much in his written evidence[80].
[80] Exhibit 114 at [53(c)].
The Tribunal is reasonably satisfied that Mr Smith did breach his duty under s 961B(1) in respect to the risk profile assessment in the M SoA.
Did Mr Smith breach s 961G
ASIC contends that Mr Smith breached s 961G of the Corporations Act on 3 grounds as detailed above.
The Tribunal has found that the s 961B element of 2 of those grounds were not made out, namely:
(e)Mr Smith’s advice to Mr M to apply for TPD and income protection insurance without a health pre-assessment; and
(f)Mr Smith’s advice that recommended that Mrs M’s insurance premiums be deducted from her superannuation account because the impact of those premiums upon Mrs M’s superannuation balance.
ASIC contends that the quality of the advice to Mr M in respect to Mr Smith’s recommendation to apply for insurance was inappropriate because the TPD and income protection application were declined due to Mr M’s medical history and the life insurance application was accepted with a 75% loading. That contention presupposes that Mr Smith did not properly identify and investigate Mr M’s health circumstances and if that duty had been satisfied, it would not have been appropriate to advise Mr M to replace those existing policies.[81]
[81] ASIC CS at [65]; Dawson Report at [17(d)].
As found above, Mr M did not lose his existing insurance cover by his application for insurance as recommended by the M SoA.
The Tribunal does not accept, having found that Mr Smith did not breach s 961B(1) in regard to Mr M’s insurance application, that he has breached s 961G because ASIC’s contention conflates the recommendation to apply for insurance with a result that would have almost certainly been the same if a health pre-assessment had been conducted. It is not simply factual that the recommendation to apply for insurance can be sheeted home to Mr Smith in how the insurer/underwriter determined on what conditions it would or would not accept Mr M’s application.
As found above, the Tribunal found that Mr Smith did not breach s 961B(1) in respect to the recommendation that Mrs M’s insurance premiums were paid out of her superannuation fund. The Tribunal accepts that by doing so the premiums took almost all of the employer contributions and growth in the fund. But the evidence was clear, Mrs M understood that would be a consequence of her decision to fund insurance from her superannuation fund.
It matters not that ASIC says that it is not the purpose of superannuation to fund insurance but rather to accumulate funds for retirement.
There is nothing unlawful in Mr Smith’s advice to use superannuation to fund insurance, this was confirmed by Ms McInnes’s evidence. An informed client choosing to fund insurance from superannuation, despite the deleterious impact on the balance of that fund, does not amount to a breach of duty under s 961G.
Mr Smith contends that the ‘final allegation proceeds on a misconception – it was not Mr Smith who set the various allocations in that table in the SOA, but the product provider, and Mr Smith was not advising them about superannuation options’.[82]
[82] Applicant’s CS at [54].
The Tribunal has found that Mr Smith was in breach of his duty under s 961B(1) in respect to the risk profile contained in the M SoA and its finding in that respect is at odds with Mr Smith’s contention.
It follows that the quality of the advice in the M SoA is tainted with that breach of s 961B(1), such that the Tribunal is not satisfied the advice on the risk profile in the M SoA is reasonably appropriate to the Ms.
The Tribunal is reasonably satisfied that Mr Smith is in breach of s 961G in respect to his advice in the M SoA as to the Ms’ risk profile.
Did Mr Smith breach s 961J
ASIC contends that Mr Smith has breached s 961J by reason there is a conflict between the interests of a financial adviser and a client where there is a commission payable to the adviser if the client acts on the advice.
ASIC relies on Ultiqa as authority to support this contention.
The facts of Ultiqa were in relation to a managed investment scheme where consumers were sold an interest that enabled consumers to go on holidays at various locations within Australia and overseas. Sales of an interest in the scheme was through sale agents operating under Ultiqa’s AFSL. The sale agents were provided a script, training manual and a template SoA which was ‘one size fits all’.
These sale agents would typically approach consumers at shopping centres, theme parks and other locations. Consumers were encouraged to attend a presentation on the scheme (and sign up) after being provided a ‘scratch card’ and if there were three matching symbols they may be entitled to a prize if they attended the presentation.
In Ultiqa, Downes J found:
(a)At [5], that the purpose of the material provided to the sales agents ‘was to maximise the prospect of a sale of an interest in the Scheme’.
(b)At [79], that the sales agents did not take the steps in s 961B(2) and at [81] that the sales agents ‘did not comply with their obligations to act in the best interests of the pleaded consumers and thereby contravened s 961B(1)’.
(c)At [87], ‘In this case, there was a conflict between the interests of the authorised representatives and the respective consumers within the meaning of s 961J(1)(a) of the Act. That is because a commission was payable to the Ultiqa authorised representative if the consumer acted on the advice and acquired interests in the scheme’.
(d)At [89], ‘There was also a conflict of interest between the consumers and Ultiqa, which was the financial services licensee of which the authorised representative was a representative. That is because …the authorised representatives were recommending an in-house product which had been developed internally within the Ultiqa group of companies. This conflict of interest fall within s 961J(1)(c) of the Act and each authorised representative knew or ought to have known there was such a conflict.
(e)At [91], ‘That they gave such priority also manifested by the authorised representatives engaging in tactics to pressure the consumers to sign up at the presentation, including (in one instance) preventing the consumer from obtaining external advice, (in two instances) misleading the consumers by representing that the interest in the Scheme was not a time-share scheme, in generally not giving the consumers sufficient privacy and time to discuss and debate the proposed acquisition of interests in the Scheme, and by offering inducement to the consumers to sign up at the presentation’.
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