A recent Financial Ombudsman Service determination (formerly FICS) makes it clear what many have known for a long time - that an adviser cannot blindly rely on a product being on their Approved Product List (APL) as being a reasonable basis for recommending that particular investment. They also need to be reasonably familiar with the features and benefits, and risks associated with any recommended products.

 

The determination included the following passage: “The Panel is not satisfied that [the adviser] properly understood the nature of the risks attached to this type of mezzanine investment or the particular risks attached to the Mount Street Mezzanine Pty Limited because of his failure to adequately research the investment prior to it being made. Accordingly, he was not in a position to assess its appropriateness for the complainant’s needs and objectives or properly advise her in relation to same.”

 

This determination stems from s945A of the Corporations Act which requires a person who provides personal financial advice to have a reasonable basis for that advice.     

The case involved Westpoint.  See ASIC’s Westpoint investor site for more information. 

But being a “researcher” is a specialised and technical field. Most advisers don’t feel qualified to be researchers as well.  How do you or your advisers go about tackling this thorny and difficult issue? Indeed, are your advisers aware that they have such an obligation?

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