The Federal Court has ordered an advice firm pay an $11 million penalty after it found the firm breached conflicted remuneration rules and its advisers provided “cookie cutter” advice.
DOD Bookkeeping, which was previously known as Equiti Financial Services and is now in liquidation, had paid $130,250 in bonuses to three financial advisers who advised clients to roll over their super into SMSFs and to buy property through a related entity, Equiti Property.
The advisers received bonuses, typically an amount between $750 and $1500 in each instance, after clients settled on property offered through Equiti Property. The number of individual payments to advisers ranged from approximately 22 to 91 a year.
Equiti FS provided financial advice and offered SMSF establishment and administration services, while real estate licensee Equiti Property recommended properties to purchase, and Equiti Finance offered mortgage broking services.
ASIC cancelled Equiti FS’s Australian financial services licence on 7 November 2024, following a $64,860 payment by the Compensation Scheme of Last Resort.
The court heard evidence from 12 clients who described how the advice the received failed take into considering their personal circumstances or objectives, and evidence presented showed two advisers were remunerated almost $240,000 a year, with almost 40 per cent being generated via bonuses.
Salary and bonus payments made by the defendant to the advisers
Source: Federal Court penalty judgment.
“The conclusion that there was a reasonable expectation that the existence of the bonuses could reasonably have been expected to influence the advisers’ recommendations and advice is strengthened by the evidence as to the proportion of the bonus payments to the advisers’ total income,” the judgment said.
Conflicted remuneration laws, introduced as part of the Future of Financial Advice reforms in 2013, prevent the payment of benefits that could reasonably be expected to influence the financial advice given to clients or the choice of financial product recommended to clients.
The ruling comes as ASIC ramps up its enforcement activity in the SMSF sector, with inappropriate rollovers into conflicted SMSF advice models being one of the regulator’s enforcement priorities.
ASIC launched a review of SMSF advice last year with the findings expected to be revealed later in 2025.
This type of misconduct has left the SMSF sector with the task of considering how it can lift standards – potentially even lifting the barriers of entry so SMSFs can only used by appropriate parties – especially as more cases may go to the Compensation Scheme of Last Resort.
ASIC deputy chair Sarah Court said the size of the penalty demonstrated the seriousness of the misconduct.
“Financial services licensees who employ advisers to provide personal financial advice need to ensure that they place their clients at the forefront,” Court said in a statement about the court finding.
