Court upholds adviser termination over insurance, SMSF advice
A litigation case against AMP Financial Planning by a financial planner has been dismissed after the court found the adviser had breached obligations under their authorised representative agreement and the Corporations Act.
In the case, McDonald v AMP Financial Planning Pty Limited, heard by the Supreme Court of Queensland, financial planner Leanne Yvonne McDonald alleged that AMP Financial Planning (AMP FP) wrongfully terminated her authorised representative agreement. You can access the judgement here.
Ms McDonald was an employee of the company Create Financial Solutions and entered into an authorised representative agreement with AMP FP in May 2012.
A clause under the terms of the AR agreement permitted AMP FP to revoke the authorisation of a representative and terminate the agreement immediately by written notice but without any prior notice if they failed to comply with any material obligation under the AR agreement, their authorisation or the relevant law.
In its defence, AMP FP alleged that Ms McDonald breached her AR agreement and it was therefore justified in terminating McDonald as an authorised representative and the agreement itself.
Ms McDonald stated that AMP FP’s auditors had made a representation to her that she had demonstrated a good level of understanding and application of quality advice principles overall, with some areas for improvement identified.
AMP FP disputed that its auditors had made representations to Ms McDonald that she was complying with her obligations under the AR agreement and the act.
The termination notice was given to Ms McDonald on 5 February 2018, following an investigation undertaken by AMP FP focused on advice she had provided to elderly clients.
According to the judgement, this investigation seemed to have been precipitated by an email of 27 July 2017 from a Mr Nicholson reporting to the defendant an issue he had come across for one of his clients, who, he believed, had been put into a worse position by Create FS from their existing insurance and superannuation.
The client was unnamed and had previously been a client of a since retired adviser engaged by the defendant. The retired adviser’s business was sold to Create FS some years before. The client had existing insurance and superannuation but Create FS immediately changed the client’s superannuation platform and insurance provider, creating what Mr Nicholson described as “blatant churn with fees and commission received
According to evidence given by AMP FP, the client had existing insurance and superannuation but Create FS immediately changed the client’s superannuation platform and insurance provider, creating what the client described as “blatant churn with fees and commission received”.
Following this complaint, AMP FP decided to conduct a deep-dive audit into advice provided to clients of Create FS.
Further concerns were identified by AMP FP about advice given to clients of Create FS, including advice given to a married couple by Ms McDonald regarding the establishment of an SMSF in order to borrow and invest in property.
AMP FP questioned whether the statement of advice she provided explored the alternative option of borrowing funds outside the SMSF to purchase an investment property in sufficient detail, especially by comparing costs in the SMSF against their current superannuation structure.
Another criticism was that by scoping personal non-superannuation investments out of the advice, Ms McDonald had not addressed whether the clients might be better off by not setting up an SMSF and instead borrowing personally, outside their superannuation, to purchase a second investment property.
AMP FP also criticised her for failing to provide the woman with the information she needed to make an informed decision about whether she should cash in a defined benefits superannuation scheme entitlement she held by failing to inform her of what the value of that entitlement may be by the time the client reached 55 years old.
She was also criticised by AMP FP for advising another couple to establish an SMSF when there was no compelling reason to do so and the costs of running such a fund were substantially more than those involved in their current superannuation structure.
In her evidence, Ms McDonald stated that the SOA given to the couple did contain a comparison of superannuation fees.
However, evidence provided by AMP FP suggested that the SOA was incorrect in stating that the man’s current fee was $2,158 rather than $1,096. The fee in the SMSF would have been just over $6,053 per annum for each client or more than $12,000 for the two of them where they were previously paying at most about $1,300, it said.
AMP FP stated that the advice to create an SMSF prematurely exposed the clients to a “high level of expense that was not in their best interests”.
In her evidence, Ms McDonald argued that the couple wanted to invest in direct property and that, while it was not necessary to have an SMSF to invest in direct shares, it was necessary to have one to invest in direct property.
AMP FP stated that it would have been “simpler to invest in direct shares through the personal MyNorth fund and then set up an SMSF later when a property might have been purchased as a direct investment”.
In the judgement, Justice Douglas found that Ms McDonald failed to comply with her obligations under the AR agreement and therefore AMP FP was justified in giving notice to Ms McDonald and in terminating her engagement with it under the AR agreement and in revoking her authorisation.
“My analysis of the evidence dealing with the breaches alleged by the defendant justifies the conclusion that she did indeed contravene that agreement in serious respects, committing material breaches of it on a significant number of occasions,” he said.
He also found that AMP FP did not mislead Ms McDonald that she was complying with her obligations under the AR agreement and the Corporations Act.
**Editor’s note** This has been updated since original publication.