“a conviction – especially for fraud – would have a significant impact on his current career as a financial planner.”
— Seamus Rafferty, Barrister and Solicitor
Reacting to the exodus
“You must act in accordance with all applicable laws .. and not try to avoid or circumvent their intent.”
— FASEA Code of Ethics, Standard 1
It may be an unpopular position to take, but fiduciaries – whether solicitors, accountants or financial advisers – must not only be competent, but should consistently demonstrate the character and conduct that justifies their position and our reliance on their advice.
As an emerging profession – and as the FASEA Standards and RG78 require – advisers and licensees have ethical, and professional obligations, to “uphold and promote” ethical standards and protect the public interest. Licensees might not be bound by the FASEA Standards, but that’s doesn’t mean that they don’t consider them; they should, and do.
Recently, a Licensee’s decision to terminate the authorisation of a jailed adviser was presented, in some quarters, as an over-reaction to ‘larrikinism’; worse than an over-reaction, given the numbers of advisers already leaving the industry voluntarily.
I understand the adviser’s frustration but, in reality, the Licensee acted appropriately and expeditiously to preserve the integrity of the financial planning profession. I don’t intend to comment on the particular case (or the people involved) but, regardless of the commercial impact on the Licensee and its other representatives, any adviser’s conviction for fraud – whether serious or not – should compel the Licensee to, at least, consider terminating the adviser’s authorisation.
I appreciate that, from an employment law perspective, these matters may not be so cut and dried but, in my experience, it is the Licensee’s obligation to act responsibly to protect consumers and the advice profession.
In reality, a decision to suspend or terminate an adviser’s authorisation is never taken lightly, or without an appreciation that it may have a significant impact, but any conviction for fraud or dishonesty requires action. Quite apart from the reputation damage that would result from a failure to act, a conviction for fraud and dishonesty goes to the heart of the Licensee’s obligation (and their representatives’ obligations) to act “efficiently, honestly and fairly” and “in accordance with the law”.
“Appearing via video link from Hakea Prison, the men pleaded guilty to three counts of failing to abide by a direction under WA’s Emergency Management Act and one count of fraud after submitting false information on their G2G border applications.”
— Cameron Myles, “Melbourne Demons fans jailed over trip to WA for AFL grand final”, SMH 13 October 2021
It’s worth noting, before criticising the Licensee, that s920A of the Corporations Act (Powers to make Banning Orders) confirms that ASIC may ban “a person is convicted of fraud”. Likewise, a conviction for serious fraud (within the last ten years) would prevent an applicant from obtaining an AFSL.
Serious fraud is defined … as an offence involving fraud or dishonesty against an Australian law or any other law and that is punishable by imprisonment for life or maximum period of at least three months.
Add to this the requirements imposed by the ASIC Corporations and Credit (Reference Checking and Information Sharing Protocol) Instrument 2021/4, and it’s clear that there is an expectation that Licensees will appropriately respond to these type of conduct-related matters. This is, I’d suggest, precisely why the Instrument is focused on identifying serious compliance and misconduct concerns.
While there is no explicit obligation to immediately terminate an adviser’s authorisation in these circumstances, there are more than adequate contextual clues to suggest that it is the expected course.
The Licensee could have waited for the adviser to be banned by ASIC before terminating the adviser’s authorisation, but is that the conduct we expect of gatekeepers and responsible licensees?
“Individually, and in cooperation with peers, you must uphold and promote the ethical standards of the profession and hold each other accountable for the protection of the public interest.”
— FASEA Code of Ethics, Standard 12
Furthermore I’d suggest that, in the wake of the Royal Commission, most people would expect that a conviction for theft, fraud or dishonesty should be an absolute bar to appointment as a financial adviser. While it may not be an absolute bar, it would in most cases be foolhardy and imprudent to entrust financial matters to persons convicted of fraud or dishonesty or proven to be ethically suspect.
Other lawyers might disagree, but where a Licensee can no longer be reasonably satisfied that a representative is of ‘good fame and character’ or will comply with the laws and act efficiently, honestly and fairly, they can no longer maintain that adviser’s authorisation. Likewise, if the adviser is demonstrably negligent, incompetent or reckless, the Licensee has a similar obligation. The termination is appropriate and lawful.
The termination of an adviser’s authorisation is not a permanent ban and does not prevent an adviser from seeking an authorisation from another licensee or finding another job.
It’s also worth noting that “the mere fact of a criminal record does not determine a person’s character and that the passage of time can heal past wrongdoing”. Good character can be restored by the passage of time and the adviser’s subsequent conduct, so the adviser can be later authorised and perhaps even immediately authorised by a Licensee with a different perspective and a greater appetite for regulatory risk.
“Each case will necessarily turn on its own facts. The nature of the initial misconduct, the subsequent attitude of the person disqualified towards it, that person’s behaviour during the period of disqualification, and the passage of time itself, are all factors which will be relevant in determining whether a person has demonstrated that they are currently of good character. ”
— Coldrey J, Aavelaid v Dental Board of Victoria  VSC 255 at