What you need to know
- Financial product advice can’t separate out different elements of a product for separately provided advice – it’s all or nothing.
- The anti-hawking regime will be enforced in relation to superannuation products.
Background
In December 2022, ASIC cancelled the Australian financial services licence (“AFSL”) of Gold Coast-based National Advice Solutions Pty Ltd (“NAS”) and banned two of its responsible managers (“RMs”) from providing financial services for a period of 10 years. In February 2023, following an investigation and referral by ASIC to the Commonwealth Director of Public Prosecutions, a Queensland court also imposed a $70,000 penalty on NAS for breaching the anti-hawking laws under s992A(3) of the Corporations Act 2001 (Cth).
‘Layered advice’ strategy
ASIC found that NAS had adopted a ‘layered advice’ strategy, under which it separated advice into pre-determined topics, regardless of a client’s personal circumstances, goals or needs. Clients would generally be provided with advice about their superannuation first, which carved out insurance from the scope of advice, even where the client was paying insurance premiums from their existing superannuation account. ASIC determined that it was inappropriate to separate advice regarding superannuation from that insurance, as the two products in this case were so intrinsically linked that advice regarding each could not appropriately be delivered separately. This ‘layered advice’ strategy also caused clients to receive expensive and templated advice that was not appropriate for their personal circumstances, actively preventing financial advisers from complying with the financial services laws, and meaning that NAS failed to ensure its financial services were provided efficiently, honestly and fairly.
ASIC had previously (in early 2020) cancelled the AFSL of Smart Solutions Group (Aust) Pty Ltd for adopting a similar ‘layered advice’ strategy, where the process was found to be confusing for clients.
Responsible Managers
ASIC also found that two of NAS’s RMs (Paul Carcallas and Gail Glasby) were partly responsible for the systemic failings arising from this ‘layered advice’ strategy.
Mr Carcallas and Ms Glasby were members of NAS’ compliance committee and the RMs in respect of the company’s AFSL, and Mr Carcallas also performed an audit function. Both had been authorised representatives of NAS.
ASIC determined that NAS has also failed to monitor and supervise its authorised representatives adequately and maintain the competence required to provide the financial services covered by its AFSL.
ASIC found that Mr Carcallas provided advice under the ‘layered advice’ strategy, which was templated, inappropriately scoped and failed to identify or consider the relevant circumstances of the clients, including when recommending that the client participate in an ongoing advice arrangement. Mr Carcallas’ statements of advice were defective and failed to include all costs associated with implementing the recommendations. Leaving out the true costs may have led clients to believe that they would have more funds available in retirement than they could realistically expect.
The banning of the two RMs has been placed on ASIC’s publicly accessible Financial Advisers Register and Banned & Disqualified Persons Register.
Anti-hawking
In relation to the same business, the court found that NAS made unsolicited calls to consumers to encourage them to roll over their superannuation into different superannuation products, and charged initial and ongoing fees for this ‘service’.
Recent reforms to the anti-hawking regime made as a result of the Hayne Royal Commission came into effect on 5 October 2021, and were aimed at protecting consumers from unsolicited offers of financial products, which often contribute to consumers purchasing products that do not meet their needs. The charges against NAS were brought under the previous anti-hawking provisions because they related to conduct that took place prior to the reforms.
ASIC deputy chair Sarah Court stated that “ASIC strongly advocated for these reforms and will continue to pursue action in the court where we see a disregard for these laws”.
Following the reforms, the prohibition against hawking financial products in s992A now provides that a person must not (with some exceptions) offer financial products for issue or sale to a retail client if the offer is made in the course of, or because of, ‘unsolicited contact’, which is:
- contact by phone;
- a face-to-face meeting; or
- any other real-time interaction in the nature of a discussion or conversation, to which the consumer did not consent.
The prohibition applies to all persons, not just the employees, agents and representatives of a licensee or relevant financial product provider.
ASIC’s Regulatory Guide 38 (The hawking provision) re-issued 23 September 2021 contains the regulator’s guidance in this area.
For more information, or to discuss financial services queries in general, please contact a member of KHQ’s Corporate & Commercial or Superannuation & Financial Services teams on +61 (0)3 9663 9877.
This article was written by Mimi Chester (Paralegal), Venn King (Principal Solicitor), and Natalie Cambrell (Director).
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