Employed financial planners may think twice about becoming authorised representatives (ARs) once Future of Financial Advice (FoFA) reforms come into effect on July 1, as they may be exposed to personal liability.
According to Charmian Holmes, solicitor and director at financial services legal firm The Fold Legal, the financial advice industry may eventually need to take a close look at the practice of appointing employees as authorised representatives.
Under the FoFA reforms, employed advisers who are authorised representatives can be held personally liable for serious breaches of the Best Interests Duty and may face up to $200,000 in fines after July 1. 
Holmes told Professional Planner that while employed financial planners are often appointed as ARs, advisers have to weigh up the risks of whether they want to continue to be authorised in this way – especially as professional indemnity insurance doesn’t cover these fines.
“There is actually no legal requirement for employed advisers to be appointed as ARs. They can provide financial services under their employer’s AFS licence without it,” she said. “If an employed adviser is not an AR, these fines won’t apply to them.”
Holmes (pictured right) added that a climate of mistrust between licensee and AR was inevitable if the latter had little or no say in compliance procedures and systems they could ultimately be held accountable for.
“ARs are going to need to be a lot more hands-on with what they accept from their licensee,” she said.
Watch list
In a guidance to the industry on the Best Interests Duty, the Australian Securities and Investments Commission (ASIC) says authorised representatives may be held liable if they:
- don’t act in the best interests of the client;
- give advice that is not appropriate for the client;
- fail to warn the client during the needs analysis phase about the impact of incomplete or inaccurate information;
- don’t prioritise the client’s interests.
Holmes said that while some licensees might argue that their employed advisers should be more accountable, it is not reasonable for those advisers to be exposed to the risks when they don’t have any control over the FoFA procedures and systems provided by the licensee. In these cases the licensee, rather than the adviser, is seen as “owning” the client.
However, ARs may have to answer to the regulator directly, potentially creating a scenario in which AR whistleblowers draw ASIC’s attention to problems at a licensee before the policeman raps on the door.
“Even though ARs can use the defence that they used the licensee’s advice templates, compliance procedures and systems, they would still have to deal with ASIC,” Holmes said.
“The exposure is still significant: advisers could potentially become bankrupt or lose personal assets and there’s no legal reason why they need to expose themselves to the risks.
“Professional indemnity insurance doesn’t cover these fines, so my advice to them is to ask their licensee to terminate their appointment as an authorised representative right now and let them provide advice as an employee only.”
