Introduction

The third matter that emerged in connection with the provision of financial advice related to the disciplinary system for financial advisers. That system now consists of a number of bodies, each directed at regulating different, though related, norms of behaviour, and each geared to different outcomes.

Those bodies are:

  • AFSL holders;
  • ASIC;
  • industry associations; and
  • once they are appointed, the codemonitoring bodies responsible for monitoring compliance with the Code of Ethics developed by FASEA.

The question that I posed in the Interim Report was whether this segmentation imposes a satisfactory standard of behaviour on what is, as numerous witnesses noted, an aspiring profession.

It does not.

All too often, the fragmented disciplinary arrangements for financial advisers have meant that advisers who engage in poor or unlawful conduct have not faced appropriate consequences for their actions. Experience shows that those who feel they are unlikely to face consequences for their poor conduct are much more likely to engage in that conduct.

One of the case studies in the second round of the Commission’s hearings illustrated some of the issues that arise from the current fragmented disciplinary arrangements for financial advisers. Mr Sam Henderson was one of two financial advisers who provided advice under the AFSL of Henderson Maxwell Pty Ltd.[1] Mr Henderson was also the CEO of that company.[2] Acting in his capacity as a representative of Henderson Maxwell Pty Ltd, Mr Henderson provided financial advice to Ms Donna McKenna. It was poor advice. If implemented, the advice would have caused Ms McKenna to forfeit her entitlement to approximately $500,000.[3]

Ms McKenna made a complaint to the AFSL holder: Henderson Maxwell Pty Ltd.[4] The company imposed no consequences on its CEO, Mr Henderson, in respect of his poor advice.

Ms McKenna made a complaint to ASIC, but ASIC took no action against Mr Henderson at that time.[5]

Ms McKenna made a complaint to the Financial Planning Association of Australia (FPA), an industry association of which Mr Henderson was a member.[6] The FPA investigated that complaint and, at the time of the second round of the Commission’s hearings, was considering resolving the complaint with Mr Henderson on a confidential basis.[7] In the course of the FPA’s disciplinary process, Mr Henderson did not renew his membership of that organisation as a ‘protest to not being heard’.[8] Doing so did not affect his ability to continue to provide financial advice. In October 2018, the FPA announced that it had fined Mr Henderson $50,000.[9] Given that Mr Henderson had sold his interests in the advice licensee, Henderson Maxwell, and had left the industry, it is not clear whether or how the penalty would be recovered.

Other case studies in the second round of the Commission’s hearings illustrated a different set of issues that arise from the fragmented disciplinary system referred to above. The Commission heard evidence about a number of advisers whose employment or authorised representative status was terminated by the licensee for misconduct, or who resigned after allegations of misconduct were made against them. Most had been members of the FPA. But the relevant AFSL holders did not report their concerns about those advisers to that association.[10]

Some were also members of the AFA, another industry association. But the relevant AFSL holders did not report their concerns about those advisers to the AFA either.[11]

Some of the advisers became authorised representatives of a different licensee, Dover Financial Advisers Pty Ltd.[12] Their previous licensees took inadequate steps to make Dover aware of their concerns about those advisers.[13]

These are no more than particular illustrations of problems that arise from the existing disciplinary arrangements for financial advisers. I have no doubt those examples could be multiplied.

As I have said, one hallmark of a profession is the existence of a credible and coherent system of professional discipline – the ultimate sanction available to be imposed under that system being expulsion from the profession. The financial advice industry currently lacks such a system. While ASIC has the power to ban financial advisers from providing financial services, the existing disciplinary arrangements for financial advisers are fragmented and ineffective, and are hampered by inadequate sharing of information and gaps between the overlapping roles of the different bodies referred to above.

A coherent system of professional discipline must be established for financial advisers. I begin by identifying some of the key features of such a system.

  • First, each financial adviser should be individually registered.
  • Second, only those who are registered should be permitted to give financial advice.
  • Third, there should be a single, central disciplinary body with the power to impose disciplinary sanctions on financial advisers – the most serious sanction being cancellation of registration.
  • Fourth, there should be a system of mandatory notifications, requiring AFSL holders to report particular information about the conduct of financial advisers to the disciplinary body.
  • Fifth, there should be a system of voluntary notifications, enabling AFSL holders, industry associations and clients to report information about the conduct of financial advisers to the disciplinary body.

In order to explain why I consider that such a system will address the issues that arise from the current fragmented disciplinary arrangements, it is necessary to say something further about the different and overlapping roles of the four types of bodies identified at the beginning of this section of the chapter.

I will take each of those types of bodies in turn.


[1] Transcript, Sam Henderson, 24 April 2018, 1747.

[2] Transcript, Sam Henderson, 24 April 2018, 1747.

[3] Transcript, Donna McKenna, 24 April 2018, 1739; Transcript, Sam Henderson, 24 April 2018, 1762.

[4] Transcript, Donna McKenna, 24 April 2018, 1740.

[5] Exhibit 2.197, Witness statement of Donna McKenna, 16 April 2018, 7–8 [49]–[52].

[6] Transcript, Donna McKenna, 24 April 2018, 1741.

[7] Exhibit 2.214, 24 April 2018, Email and Attachment Concerning Agreed Disposal of CRC Disciplinary Proceedings, 10.

[8] Transcript, Sam Henderson, 24 April 2018, 1767. See also Transcript, Dante De Gori, 26 April 2018, 1796.

[9] FPA, ‘FPA Conduct Review Commission Hands Down Determination for Sam Henderson Case’ (Media Release, 11 October 2018).

[10] Transcript, Dante De Gori, 26 April 2018, 1821.

[11] Transcript, Philip Kewin, 26 April 2018, 1841.

[12] See Exhibit 2.236, Witness statement of Terrence McMaster, 10 April 2018, 4–8 [32]–[71]. See also Transcript, Michael Wright, 20 April 2018, 1459; Transcript, Darren Whereat, 20 April 2018, 1546; Transcript, Sarah Britt, 23 April 2018, 1640.

[13] Transcript, Michael Wright, 20 April 2018, 1459–62; Transcript, Darren Whereat, 20 April 2018, 1546–8; Transcript, Sarah Britt, 23 April 2018, 1640–2.

83 thoughts on “Introduction”

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