The following article provides useful insights and lessons for financial planners from a recent compliant that received disciplinary action through the Conduct Review Commission (CRC).

The FPA recently progressed a complaint through our disciplinary process to a full panel hearing before the Conduct Review Commission (CRC). Complaints that progress to the CRC often offer useful insights and lessons for practitioners. This case is no different as there are several useful takeaways for Members to consider.

The FPA received a complaint against an AFP^® member (the Member) from a former client (the Client). The Client had previously engaged the Member for financial advice. She was advised to open an SMSF and was placed on an ongoing service agreement for management of this and the underlying assets. After 6 months, the Client advised the Member that she wished to stop paying for the ongoing service agreement and would instead engage the Member for services as and when she felt she required them.

The relationship continued for nearly two more years, albeit without responsibilities or services being formally defined. In this period, the Member sold securities as requested by the Client and on at least two separate occasions provided some services and responded to the Client’s queries regarding financial planning.

However, after seeking the advice of a new Financial Planner, the Client lodged a complaint with the FPA. Following investigation, the FPA established that, in its view, there had been a breach of the FPA Code and referred the matter to the CRC for adjudication.

There followed a hearing in which the Member was able to provide evidence and make representations.

The Member stated that he had advised the Client of the consequences of ceasing the ongoing service arrangement, including the responsibilities around the SMSF that would devolve to her. However, he was unable to provide any file notes or documents that supported this claim.

The Member acknowledged that, due to a number of factors, his provision of the Client’s file was delayed and not within standard practice.

On reviewing the evidence, the CRC panel found that a number of breaches of the FPA Code of Professional Practice 2013 had occurred:

1. The Member failed adequately to communicate, document, or explain how the Client’s actions in ceasing to pay the ongoing service agreement would impact the service the Member was providing, or that there were ongoing responsibilities around the administration of the SMSF that would flow to the Client (breaching Practice Standard 7 – Rule 7.28.).
2. The Member failed to transfer the Client’s file within an acceptable time frame despite numerous requests over a 6 months’ period (breaching Principle 8 (Diligence) of the FPA Code of Ethics).
3. While the Member had been under no obligation to assist the Client by transacting the sale of the holdings she had requested, on agreeing to do so he should have offered to do so on an execution-only basis, rather requiring that a Record of Advice be produced for each sale, which delayed the sales and involved the Client in greater expense than was necessary.

Key Points

• It is the adviser’s responsibility to ensure that the basis and nature of the relationship is clearly explained to the client. This extends to the end of the relationship, where the adviser should set out at a high level the any ongoing responsibilities that will devolve to the client.
• As ever, record keeping and file notes are imperative to be able demonstrate actions that you have taken, and clear communication is key to ensuring all parties have a common understanding as to what services are being provided.
• There can be responsibilities owed to a client, even after they move to a new adviser. These include transferring the file to the new adviser in a timely fashion (the FPA’s Best Practice Guide gives 21 days as the appropriate time frame).
• It is appropriate to ensure that the most suitable service for a client’s needs is offered to the client.