“We will start naming and shaming those institutions that we find to have failed when it comes to the provision or checking of references. If these things don’t work, it will be a big problem.”
— Peter Kell, ASIC Deputy Chair, March 2017
In the aftermath of the War for Talent
The Hayne Royal Commission has highlighted the damage that poor recruitment processes, and poor recruits, can do to your business.
For a long time, ASIC have been warning Licensees about the need for better reference checking and reminding them of their obligation to ensure that ‘rogue advisers’ don’t simply move between licensees.
Unfortunately, many Licensees – distracted by their focus on distribution – treated reference checking as an optional extra. In the Great War for Talent, commercial considerations outweighed any alleged, suspected or known failures of character, competence or capability. The collusive ‘don’t ask, don’t tell’ approach to adviser recruitment seemed to work well and no Licensee really wanted to upset the apple cart. Except, as the Royal Commission proved, it wasn’t working.
As a Licensee, you operate in a commercial environment subject to a range of legal, moral and social obligations. You, and the advisers you authorise, routinely act and make decisions that can significantly impact the lives and circumstances of your clients. As focused as you may be on growth, you need to discriminate; you cannot simply recruit without investigating, and assessing, the people you propose to authorise. Nor can you simply make a decision on the basis of information you have at hand or that offered to you by the potential recruit.
In our view, a critical indicator of the success and sustainability of your business is your process for assessing and appointing advisers.
Last year, an article about a former adviser named Shane Thompson highlighted the flaws and limitations of some Licensee’s current processes.
“According to ASIC data, banned financial adviser Shane Thompson joined AMP Financial Planning as an authorised representative in 2013 after his employment was terminated with NAB for forging 22 clients’ change of adviser forms, and remained with the licensee until the beginning of last year.”
— Killian Plastow, ifa, 31 October 2017
AMP defended their vetting process and asserted that they had “completed full reference checks at the time” and no compliance issues were found. A spokesperson for AMP stated: “AMP values the importance of high standards in the adviser recruitment and vetting process.” They continued be stressing that
“Our processes are reflected in the Australian Bankers’ Association’s protocol for the recruitment and termination of financial advisers, which was launched last year (2017) and ensures reciprocal information is shared between Australian licensees. ”
— AMP Representative, quoted by Killian Plastow, ifa, 31 October 2017
This is reassuring, but untrue.
The ABA launched their Protocol in 2016. It became mandatory for ABA member is 2017 but it was not unknown to AMP in 2016 nor were AMP unaware of the Australian Standard on Reference Checking (AS 4811-2006) that had been promoted by ASIC since 2007.
It’s not clear what process or protocol AMP followed prior to 2017. Nor is it clear as to whether NAB or Mr Thompson wilfully withheld information from AMP.
“And don’t you know it’s a cry-yin’ shame
When you’ve got yourself to blame”
— Johnny Diesel, “Cry in Shame”
We’ve previously addressed the risks and opportunities of appointing advisers, the obligation of Licensees to check references properly and the critical need to assess potential advisers’ compliance, conduct and competency. While AMP and others might rationalise their omissions by asserting the absence of an agreed process, the Australian Standard on Reference Checking (AS 4811-2006) provides practical guidelines and fact-based verification protocol.
AS 4811-2006 was developed, it must be noted, with the assistance of representatives from the FPA, NIBA, SDIA, AFA and IFSA and these Associations promoted it to their members which, at the time, included the vast majority of advice businesses.
Even if AMP had not reasonably been aware of the Standard, any competent business should appreciate the need to assess any potential adviser and their advice. This not only has to be done, it has to be done properly. For the benefit of those licensees just discovering their compliance obligations, let me be clear, this not only has to be done, it has to be done properly.
As a licensee, you not only have to ask questions about advisers, you need to answer them as well.
Three pre-appointment tips
1. Conduct rigorous employment and Licensee checks
- Consider whether the applicant’s current authorisation aligns with your business.
- Identify the Licensees the applicant been associated with in the last ten years.
- Investigate whether any of those Licensees were subject to ASIC actions (banning, cancellation or EU).
- Review their social media content.
- Search and examine Google, Facebook, Instagram, Twitter and website(s).
- Identify any complaints or negative comments from the public or clients.
2. Check references and qualifications
- Obtain written consent to you making enquiries to confirm the information they’ve provided. If they refuse consent – for any reason – consider not proceeding with their application.
- Reassure the applicant that referees won’t be contacted unless, or until, the other checks are done.
- Obtain copies of the relevant documents.
3. Focus on assessing Capability, Competency and Character.
- Consider whether the adviser is going to meet the proposed requirements from FASEA.
- Interview referees that have recently worked with the applicant (past 12 months) and have played a role in supervising or monitoring the adviser.
- Be objective. Seek fact-based responses from referees and not opinions. For example, “Was Ms A subject to performance management or any disciplinary action within the last 12 months?”
- If a referee won’t provide information/documents/responses, record the date of your request, what was sought, the response you received and from whom (name, title and contact details).
GET REFERENCE CHECKING TOOLS
We anticipate that the Royal Commission will inevitably lead to a higher level of scrutiny, so we think it’s important to build strong processes now in anticipation of that future. Compliance, and better governance, can help you make the most of any opportunities that may arise.
If you require assistance, reach out to us (firstname.lastname@example.org)