Corporate collapses are a fact of life in the modern economy. Thankfully they don’t happen too often. But they do happen, and even the best financial planners may have to deal with this issue during the course of their professional career.
It is particularly difficult when the collapse affects a financial planner’s clients who relied on the advice of their expert adviser to participate in the product. Retaining the client’s trust and confidence through a corporate collapse and bringing them safely to the other side is critical. A key but challenging part of this is in to put your own financial concerns aside to ensure your client’s financial interests are protected and that they get access to appropriate avenues of recourse.
The first port of call for any avenue of redress is the product provider. Not only is it generally a requirement of industry external dispute resolution schemes that the complainant utilise the company internal dispute procedure first, but this will also assist in ensuring the client is identified for any future action that may arise through administration of the company.
The next step is taking it to the appropriate external dispute resolution (EDR) scheme for the product. This might typically be the Financial Ombudsman Service (FOS), which doesn’t just deal with complaints against financial planners, but also handles complaints in relation to almost all forms of investments, insurance and superannuation.
Whilst there are recognised monetary limits to FOS’s capacity to award compensation, they can at least respond to the complaint; and in doing so, this will further enhance the client’s rights if any future administration action arises.
However, claims brought after a company has gone into external administration may be barred from recovery.
Client concerns should also be lodged directly with ASIC, because they obviously handle complaints where breaches of the law are evident. They are also likely to be the agency that formally triggers administration action, and so it is helpful for clients to be identified to them.
By itself though, ASIC notification is not automatically a path to financial recovery. It needs to be accompanied either by creditor action, individual (or class-based) civil action or, in cases where ASIC thinks it is in the public interest to do so, they have the power to initiate their own Section 50 action.
In all of these cases, the financial planner may be called upon to liaise with the administrators and investigators, and may have a role in referring their affected clients to lawyers with suitable expertise.
Sometimes, of course, the financial planners themselves become the subject of investigations, in which case it may not be appropriate or ethical for them to be seeking to represent affected clients. In these circumstances their clients’ interests may be best served by seeking advice from another professional who can offer an independent view of the situation. It also pays for financial planners to understand the terms of their or their licensee’s professional indemnity insurance policy and how it may limit their capacity to communicate with their clients. The planner’s ethical and professional obligations may be in conflict with obligations to their employer, their licensee, and/or the commercial interests of their insurer.
When it all boils down, suffering financial loss from a product collapse is a tense and stressful issue that has the potential to destroy the client’s (and the financial planner’s) trust in the financial services marketplace. At times like this, living up to the promise of being a trusted professional requires the financial planner to draw on all their skills of professional advocacy and sensitivity; and, above all else, it requires us to focus on the needs of the client without regard to our industry’s or our own financial consequence.
The fact that it happens at all suggests that we should consider developing an action plan to kick into place for affected clients. This should be designed around the specific needs of clients.
Improving product regulation and gatekeeper regulation is a central part of our Future of Financial Advice (FoFA) taskforce considerations. In the meantime, financial planners who are confident in their original recommendation and the research strength behind it, and those who genuinely follow the FPA Code of Professional Practice, will have greater confidence that their recommendation was appropriate at the time it was made.
Deen Sanders is deputy chief executive and head of professionalism for the Financial Planning Association of Australia