Employed advisers who are authorised representatives can be held personally liable for serious breaches of the Best Interests Duty and may face up to $200,000 in fines once Future of Financial Advice (FoFA) reforms come into effect on July 1, according to Charmian Holmes, solicitor director at The Fold Legal (the Fold).
Ms Holmes said while employed financial planners are often appointed as authorised representatives (ARs), advisers have to weigh up the risks of whether they want to continue to be authorised in this way.
“There is actually no legal requirement for employed advisers to be appointed as ARs. They can provide financial services under their employer’s AFS licence without it,” she said. “If an employed adviser is not an AR, these fines won’t apply to them.”
Authorised representatives may be held liable if they:
- Don’t act in the best interests of the client
- Give advice that is not appropriate for the client
- Fail to warn the client during the needs analysis phase about the impact of incomplete or inaccurate information
- Don’t prioritise the client’s interests
Ms Holmes said that while some licensees might argue that their employed advisers should be more accountable, it is not reasonable for those advisers to be exposed to the risks when they don’t have any control over the FoFA procedures and systems provided by the licensee.
“Even though ARs can use the defence that they used the licensee’s advice templates, compliance procedures and systems, they would still have to deal with ASIC,” Ms Holmes said.
The exposure is still significant, advisers could potentially become bankrupt or lose personal assets, and there’s no legal reason why they need to expose themselves to the risks, Ms Holmes said.
“Professional indemnity insurance doesn’t cover these fines so, my advice to them is to ask their licensee to terminate their appointment as an authorised representative right now and let them provide advice as an employee only,” she said.
