Conducting a Reasonable Investigation
It was announced yesterday that Dixon Advisory has been handed a fine of $7.2 million dollars by the Federal Court.
The Court found that on 53 occasions between October 2015 and May 2019, Dixon Advisory was the responsible licensee of six representatives who did not act in the best interests of eight clients when they advised these clients to acquire, roll-over or retain interests in the US Masters Residential Property Fund.
Whilst the clear conflicts of interest in this case, when recommended in-house products, don't apply to any advisers in our AFSL, it does highlight the importance of conducting a reasonable investigation into the clients relevant circumstances.
A critical element is ensuring the file includes enough information to evidence the appropriateness of the advice given. This is not always done. For example, an adviser cannot simply ignore the current super fund and recommend a new one.
At a minimum, an adviser should collect balances, fees and charges, taxable components, investments and allocation, ancillary benefits, exit costs and insurances for all existing funds. Simply relying on the output from Xplan's modules such as WealthSolver would not meet the requirements of completing a reasonable investigation.
For a new client, we would consider a reasonable investigation to include obtaining an authority to access information from the client. Then sending this authority and contacting the provider to obtain all the information included above. Then recording this information and saving it in Xplan.
For an existing client, you could download the necessary reports from the platform, and save these in Xplan. This is crucial where a product is being replaced. Whilst you may be the servicing adviser today, the necessary information may not be available once the funds have been rolled over, and therefore cannot be evidenced on the file.
Looking to the future:
While the recent proposals in the Quality of Advice Review look at scrapping the prescriptive 7 steps of safe harbour, we don’t see the requirements to complete such steps also becoming redundant. You will still need to retain the necessary evidence of 'good advice' and how your advice was in the client’s best interest.