Adviser liability risks: Is your back covered?

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Will your licensee leave you in the lurch if you receive a complaint? This is a distinct possibility under FoFA, says a financial services lawyer.

According to Mills Oakley Lawyers consultant Sean Graham, advisers need to be fully aware of the liability risks that they have to contend with as the authorised representative.

“At the end of the day the liability’s going to rests with you, not with the institution. And most institutions you’d have to imagine will be concerned about the institutional reputation and the institutional position – not necessarily the individual adviser,” he told Wealth Professional.

“If you look at the example of complaints, traditionally the complaint comes in and the adviser will hand it off to the licensee to manage in most groups. But potentially you’re going to reach a point under FoFA where the interests aren’t aligned anymore – where it might be in the interests of the licensee to say ‘no, we told you you should have done it in a particular way, you did something else. This is your problem’.”

What this means, said Graham, is that advisers need to make sure that they have adequate PI insurance coverage to deal with a post FoFA environment, and they may even may need to look outside of their institution for the resources and support required to cover their backs.

He added that licensees will have a compliance manager in place to help advisers stay on the right side of the law but questioned whether they have the right skills to protect front line staff.

“You’ve got some players involved who might not necessarily have the scale, resources or expertise to provide the services,” he said.

“Moving into this brave new world of a lot of regulation, which is complementary and in some cases conflicting, there’s a lot of uncertainty. But I think one of the things we can definitely see when we look at the conflicted remuneration paper, and when we look at MySuper and Stronger Super, is that there’s going to be a lot of fundamental change in the advice industry.”

“I think this is probably the biggest shakeup they’ve had – definitely bigger than FSR – and I think they’ve been overwhelmed by the extent of the regulation and the lack of clarity that they’re really struggling to put it all together.”

Advisers to jump ship

Graham added that the fear of liability, coupled with new restrictions on remuneration and other benefits that advisers have traditionally received, is causing a lot of advisers to consider their options.

“That would cause some advisers to use this as an exit point to get out of the industry,” he said. “There’s an expectation that some of them will leave.

“Others will also be worried about how it’s going to work, and how over time they’re going to manage the liability that sits with them personally.”

“Those advisers that decide they want to go and get their own license to try to take control of their business and the revenue for their business – the issue is going to be how they support themselves.”

Are you concerned about your liability risks? Have your say by commenting below.

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  • David Siostrom on 4/12/2012 11:09:40 AM

    Personal liability is a huge concern for me. Does a corporate AR have the first liability or is the advisor the first person in the firing line?

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