The Turnbull government’s Royal Commission is putting the financial services industry under the spotlight, with many people wondering what to do if they have been a victim of bad financial advice.
The corporate regulator has launched a major investigation into hundreds of funds in a bid to uncover unlicensed SMSF advice.
As reported by ifa sister publication SMSF Adviser earlier this year, ASIC is currently conducting a major shadow shopping exercise, and has now started contacting various SMSF professionals to collate data on the set-up process of hundreds of funds, as part of a massive research project set for release later this year.
In emails seen by SMSF Adviser, it is clear ASIC has selected several hundred funds that were set up in September 2016 for random investigation, and is contacting tax agents associated with the funds.
ASIC is asking if the clients of the tax agents received any professional advice about establishing their SMSF and, if so, that the contact details are passed on.
While ASIC is gathering details about both financial advisers and accountants as part of this project, it is understood that broadly, unlicensed accountants in particular are on the regulatory radar.
The information supplied to ASIC is treated as anonymous, but the general findings will be published in a report slated for the second half of this year, an ASIC spokesperson told SMSF Adviser.
ASIC could not outline any further details of the investigation, except to confirm that it is pursuing its “major” shadow shop as announced in February, and will be looking at random samples of SMSF advice.
Despite being relatively lax in the past to instances of accountants operating outside of the accountants’ exemption in particular, BDO’s national leader for superannuation Shirley Schaefer suggested ASIC will be taking no prisoners this time around.
“I suspect a lot of accountants have sat outside the accountants’ exemption for years, and ASIC never did anything about it in the past,” Ms Schaefer told SMSF Adviser.
She acknowledged that many accountants do not agree that the SMSF services they are providing fall into the financial advice category, an argument that is largely irrelevant in 2017.
“This is not just tax advice. I certainly believe [SMSFs are] a structure not a product, but that argument is gone. There’s no point having that one again. We’ve been there and it’s gone,” Ms Schaefer said.
Article from: Independent Financial Advisor
KATARINA TAURIAN- Wednesday, 29 March 2017
Following an ASIC investigation, Mr Cymon Fontaine has been sentenced to four years' imprisonment in the Southport District Court for seven charges of fraud.
Mr Fontaine pleaded guilty to defrauding six clients for a total of $105,910.10 and caused a loss of $4500 to another client.
Between 28 June 2011 and 1 July 2013, Mr Fontaine was an authorised representative and Corporate Upgrades Consultant for Wyndham Vacation Resorts South Pacific Limited (Wyndham), a financial services company selling time share interests in resorts and hotels.
Between April 2013 and October 2013, Mr Fontaine exploited the credibility and contacts gained from his position as a Corporate Upgrades Consultant to contact existing clients. He then offered to assist them with upgrades and the purchase of secondhand credits at a cheaper rate than that being offered by Wyndham.
Mr Fontaine used these funds for his own purposes, never purchasing the agreed secondhand credits for the clients. Once discovered, Wyndham terminated Mr Fontaine's employment on 1 July 2013. However, Mr Fontaine continued to defraud some clients after his employment was terminated.
ASIC Deputy Chair Peter Kell said, 'This kind of dishonesty is not tolerated by ASIC or the community.'
This matter was prosecuted by the Commonwealth Director of Public Prosecutions.
Mr Fontaine was charged under sections 408C(1)(d) and 408C(1)(e) of the Criminal Code 1899 (Qld).
Wyndham is a developer and marketer of flexible, points-based holiday ownership products. Clients buy into different levels of memberships with Wyndham by buying 'points' or 'credits' from Wyndham. Depending on a client's level of membership (determined by the number of credits the client has) they are allowed different levels of privileges and benefits, including using their credits to stay at Wyndham's resorts and hotels or partner resorts or hotels.
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ASIC has banned financial adviser, Mr Darren Tindall, of Orange, NSW, from providing financial services for five years after an investigation found he failed to comply with financial services laws.
Mr Tindall was an authorised representative of Roan Financial Group Pty Ltd between 9 May 2013 and 19 May 2014, and was based in Orange, NSW.
Mr Tindall was banned from providing financial services after ASIC found that he had:
ASIC Deputy Chair Peter Kell said, 'ASIC will take action against financial advisers who have been dishonest or who mislead their clients, in order to increase public confidence in the financial services industry.'
On 17 January 2017, Mr Tindall applied to the Administrative Appeals Tribunal (AAT) for a stay of the banning and review of ASIC's decision. The stay application was heard on 27 January 2017. On 9 February 2017, the AAT refused the stay. The date for the hearing of review of ASIC's decision is yet to be set.
ASIC has banned life insurance financial adviser Mr Mateen Mohammed, of Calamvale, Queensland, from providing financial services for seven years.
ASIC’s action against Mr Mohammed, a former authorised representative of Synchronised Business Services Pty Ltd, is part of ongoing enforcement and regulatory action following ASIC’s review of life insurance advice.
As a result of ASIC's surveillance, it was found that Mr Mohammed:
In particular, it was found that Mr Mohammed did not act in the best interests of his clients in that he failed to:
ASIC also found that he had submitted an insurance application without his client's knowledge and as a result had misled or deceived the insurer as to his authority to do so.
ASIC Deputy Chairman Peter Kell said, 'Any advice to switch existing life insurance and superannuation products must be in the client's best interest. Where there is nothing in the client’s relevant circumstances to indicate that the switch would be beneficial, ASIC will conclude that the client is not in a better position.'
Mr Mohammed was an authorised representative of Synchronised Business Services Pty Ltd during the relevant period, from 1 July 2010 to 22 April 2015.
Mr Mohammed has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC's decision.
Outcomes following ASIC’s review of life insurance advice include:
ASIC has permanently banned former NSW financial adviser Mr Ashley Grant Howard from providing financial services after an investigation found he had:
ASIC found that Mr Howard had failed to comply with the Corporations Act in that he:
ASIC also found that Mr Howard had failed to:
Mr Howard's dishonest unauthorised use of the $1.8 million from clients led to ASIC finding that he was not of good fame and character.
ASIC Commissioner John Price said, 'ASIC will take action to remove persons from the financial services industry to protect the public. Mr Howard's conduct was particularly bad in that, on occasions, he preyed on elderly and vulnerable people.'
Mr Howard has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC's decision.
In 2014 ASIC commenced an investigation into the circumstances surrounding the misappropriation of funds from the initial public offering for Elsmore Resources Limited [ASX code: ELR] ('Elsmore'). Elsmore listed on the ASX on 20 December 2013 at a time when Mr Howard was a director.
During the course of this investigation ASIC became concerned about the conduct of various individuals, including Mr Howard's, and which has led to his permanent banning from providing financial services.
Mr Shaun Morgan, a New Zealand national, also came to ASIC's attention during the investigation and led ASIC to issue a public warning notice about Mr Morgan and his companies (15-016MR). Subsequently last year ASIC permanently banned Mr Morgan from providing financial services (15-140MR) and he was removed as a director from various Australian companies in light of his criminal conviction in the United States (15-275MR).
Elsmore itself has pursued legal action to recover the allegedly misappropriated funds from Mr Howard and his associates, Periwinkle Investments Pty Ltd, HF Global Corporate Financial and Harry Fung. Mr Howard is currently a bankrupt, which has impacted on the ability of the company to enforce a settlement agreement entered into with Mr Howard requiring him to repay the misappropriated funds. Most recently the Supreme Court of New South Wales ordered Mr Fung to pay approximately $680,000 to the company.
Elsmore Resources Limited was delisted by the ASX on 15 August 2016.
ASIC's investigations into Mr Howard and other associated individuals continue.
ASIC has banned Adelaide financial adviser Michael Mahoney from providing financial services for a period of four years.
Mr Mahoney was employed by the BT Financial Group Pty Ltd (BTFG) in the Westpac Scaled Advice Insurance business from October 2013 to July 2014 to provide general advice only to retail clients on insurance products.
ASIC's investigation found that during the period Mr Mahoney was employed at BTFG, he engaged in conduct that was misleading and deceptive. Specifically, he entered false information regarding various clients' health or health-risk factors in telephone applications for insurance policies issued by Westpac Life Insurance Services Ltd (WLIS). This resulted in WLIS issuing policies to clients based on false information and assuming greater risks without having an opportunity to undertake an assessment of those risks.
WLIS has agreed to honour the affected client policies.
ASIC Deputy Chairman Peter Kell said, 'This outcome shows that ASIC expects employees who are providing financial services to maintain high standards and not engage in conduct that is misleading and deceptive.'
Mr Mahoney has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC's decision.
This outcome is a result of ASIC's Wealth Management Project. The Wealth Management Project was established in October 2014 with the objective of lifting standards by major financial advice providers. The Wealth Management Project focuses on the conduct of the largest financial advice firms (NAB, Westpac, CBA, ANZ, AMP and Macquarie).
ASIC's work in the Wealth Management Project covers a number of areas including:
As part of its Wealth Management Project, ASIC has banned the following advisers from the financial services industry, in addition to Mr Mahoney:
ASIC has permanently banned Mr Sandeep Madhoji from providing financial services or engaging in credit activity after he was sentenced to imprisonment for fraud charges. This prosecution was the result of a joint operation between the Queensland Police Service and ASIC.
The charges stemmed from conduct that occurred between 2 September 2010 and 11 July 2012. During this period, Mr Madhoji misused clients' funds by applying some client's funds to cover the loss made on other client portfolios.
As a result of Mr Madhoji's actions, 14 clients collectively lost $3,251,281. These losses were incurred by Mr Madhoji using his recommended trading strategy.
Mr Madhoji made false statements to his licence holder Redwood Capital Group and to his clients to conceal his losses. He acted outside his authority by making multiple unauthorised transfers and withdrawals from the accounts to hide the losses. Mr Madhoji also falsified client account statements in relation to the relevant transactions.
Mr Madhoji committed these offences to enhance his reputation to clients and create an illusion that he was a highly successful trader.
ASIC Deputy Chairman Peter Kell said, 'Dishonesty by any financial advisor will not be tolerated by ASIC. We will investigate and prosecute instances of dishonesty to ensure that consumers have confidence in the financial system.'
On 26 August 2016, Mr Madhoji was sentenced to 7.5 years imprisonment with a non-parole period of 22 months in the Brisbane District court on 55 charges of fraud under sections 408C of the Queensland Criminal Code.
Mr Madhoji was an Authorised Representative under Redwood Capital Group Pty Ltd, AFSL No. 289327. AFSL No. 289327 held by Redwood Capital Pty Ltd was cancelled on 9 April 2013.
Mr Madhoji's status as an Authorised Representative was ceased on 1 July 2012.
This matter was prosecuted by the Queensland Director of Public Prosecutions.
On 9 September 2016, the Administrative Appeals Tribunal (AAT) upheld ASIC's decision to disqualify Mr Abe Samuel from being an approved self-managed superannuation fund (SMSF) auditor.
The AAT found that Mr Samuel "plainly breached the auditor independence requirements in APES 110 (Code of Ethics for Professional Accountants). As a consequence, he contravened his professional obligations under s128F of the Superannuation Industry (Supervision) Act 1993."
The AAT was satisfied that Mr Samuel "failed to carry out or perform adequately and properly the duties of an auditor under the Act or the Regulations or as otherwise required by law; and, furthermore or alternatively, the Applicant (Mr Samuel) is not a fit and proper person to be an approved SMSF auditor for the purposes of the Act."
The AAT stated that it upheld ASIC's decision due to "the very serious and fundamental nature of the applicant’s (Mr Samuel's) deficiencies; his longstanding and ongoing failure to understand properly those deficiencies; and the clear need to uphold the integrity of the SMSF system."
ASIC Commissioner John Price noted the AAT finding, saying: "To safeguard the SMSF sector, ASIC will continue to use its power to disqualify approved SMSF auditors that don’t perform their role adequately and meet professional standards."
SMSF trustees and members can check whether their auditor is registered, or whether a person has been disqualified, by searching ASIC's SMSF auditor register at connectonline.asic.gov.au.
Information about Mr Samuel was referred to ASIC by the Australian Taxation Office (ATO).
On 7 October 2015, ASIC made an order disqualifying Mr Samuel from being an approved SMSF auditor. Mr Samuel requested that ASIC reconsider the disqualification decision. On 23 November 2015, a delegate of ASIC confirmed the decision.
ASIC found that Mr Samuel had breached auditor independence requirements of APES 110 where he was:
On 18 December 2015, Mr Samuel applied to the AAT for a review of the disqualification decision.
From 1 July 2013, the SIS Act required all auditors of SMSFs to be registered with ASIC. This was to ensure that all SMSF auditors at least meet the base standards of competency and expertise.
ASIC and the ATO work closely together as co-regulators of SMSF auditors. The ATO monitors SMSF auditor conduct and may refer matters to ASIC for possible action such as disqualification or suspension of their registration.
See also 15-362MR ASIC disqualifies Abe Samuel as SMSF auditor.
