Licensees are at risk of civil and criminal penalties under proposed experience pathway legislation if they can’t accurately verify an adviser’s history.
The Minister for Financial Services Stephen Jones announced the draft legislation for the education carve-out a month ago and licensees, as well as advisers, could face criminal and/or civil penalties for giving false or misleading information.
Insignia Financial head of professional standards John Corcoran says there’s a conflict of interest when it comes to relying on adviser information that licensees may not be able to verify.
“Because there’s a conflict that exists on the adviser’s side – given the connection to not having to complete further study and the time and cost savings that would represent to them – there’s potential for them to provide false or misleading information to the licensee,” Corcoran says.
He adds licensees would likely be more comfortable with a statutory declaration given by the adviser due to the risk faced by licensees.
“There would be a qualified defence for the licensee if they had no reason to believe the information they reported on the [ASIC Financial Adviser Register] was false or misleading,” Corcoran says.
Corcoran pointed to an adviser banned in March for falsifying his adviser exam result as an example of the difficulty for verifying information.
Sydney-based adviser Todd Karamian altered his certificate from a ‘fail’ result to a ‘pass’ result and sent the altered certificate to his licensee, Bluepoint Consulting, which then provided the certificate to ASIC.
Karamian had been providing financial advice for just over nine months from the 2021 FASEA exam deadline.
Corcoran says the risk of having an adviser mislead a licensee creates further potential consequences.
“If that individual was authorised when they were not eligible, then would a PI insurer respond to any claim for advice that was provided by that individual during that period?” Corcoran says.
“If you had asked me a few months ago whether I thought that there was a risk here, I probably would have had a slightly different opinion to what I have today.”
Conrad Gilbert, professionalism and ethics adviser at Diverger-owned Knowledge Shop, says the issues come down to being able to demonstrate “relevant experience”, which isn’t necessarily a simple task.
“Even now [licensees] need to start thinking about this because they could have some advisers that are authorised to them that they would think would meet the experience pathway,” Gilbert says.
“It could be, for example, they’ve got eight years of experience that they can show on the FAR but there might have been time in the past where they were an employee.”
Proof of registration
The ASIC Financial Adviser Register has been in place since 2015, but although other adviser registers preceded it, they didn’t cover employed advisers at institutions.
“It’s not a big issue if you’re dealing with somebody who’s an authorised representative because we’ve got registers with ASIC that have been in place since 2001 that can verify that information,” Corcoran says.
However, there’s also the challenge for verifying an adviser where they were a representative if that business is no longer be in operation.
“Employees of the licensee, and particularly where that licensee is no longer operating, [we would be unable] to verify some of that experience prior to 2015 when the FAR came into play,” Corcoran says.
“If you look at the timeframe they’ve got [on the draft legislation], it’s 2007 to 2015 – potentially eight years of experience that may not be on any registers – in order for us to verify.”
Using his own experience as an example, Gilbert says viewing himself on the FAR shows he has been an authorised representative since 2010 even though he was first authorised in 1989.
“They could get a reference,” Gilbert says, referring to advisers potentially in a similar situation.
“But what if that organisation is no longer around? How do they prove it?”
Despite acknowledging this gap in the pathway, Gilbert says he sits on the fence over the issue.
“I’ve done all the qualifications, although I don’t quite meet certain [requirements] right now,” he says.
“There are good advisers out there with lots of experience that we don’t want to lose. We do need to move on and draw a line in the sand and get on with it.”
He adds that advisers and licensees need to be proactive about confirming qualifications for the pathway.
“Two years is not long,” Gilbert says.
“They don’t want to get to a point where they get to that 2026 and suddenly realise they have a good adviser they can’t verify.”