At a glance
As told to Susan Muldowney
Question: “A client at my accounting practice asked about getting financial advice to help them with the investment side of their new self-managed super fund.
The financial advice group we have a relationship with has been referring a lot of clients back to us, so there is a sense of obligation.
However, there is anecdotal evidence coming from mutual clients that the group’s investment process is flawed and involves elevated risk. Should I recommend them anyway?”
Answer: While an existing relationship with a financial advice group might create a sense of obligation, the primary responsibility for accountants is to act in the best interests of their client.
APES 110 Code of Ethics for Professional Accountants outlines the fundamental principles of ethics and establishes the standard of behaviour that is expected. The principles are integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
All of these principles are relevant in this situation. If the accountant makes a referral to a financial advice group, they must ensure the group is able to competently provide advice that is specific to the client and their situation.
As there is only anecdotal evidence that the advice group’s investment process is flawed, it would be wise to do some due diligence and investigate the concerns, especially if previous clients have been referred to them. It could be something as simple as a phone call to discuss the processes they have in place.
If there is credible evidence suggesting that the advice group’s investment process is flawed and leads to elevated risk, referring a client to them could be seen as a breach of duty to act in the client’s best interest. It could also extend to breaching the principles of professional competence and due care.
In terms of regulatory considerations in Australia, under the Corporations Act 2001, individuals who provide financial services, including financial product advice, must hold an Australian Financial Services (AFS) licence, unless an exemption applies.
Accountants who refer clients to financial advisers may be considered to be providing a financial service and, therefore, may need to hold an AFS licence unless the referral is a “mere referral” that consists only of information about the services that a financial adviser can provide and how to contact them.
Additionally, if the accountant receives any form of benefit, such as referral fees, from the advice group, there are strict disclosure requirements. The accountant must obtain the client’s consent to retain any such benefits and inform the client in writing about the amount received.
Standards 2 and 3 of the Financial Planners and Advisers Code of Ethics 2019 emphasise the importance of acting in the client’s best interests and avoiding conflicts of interest, which means advisers are not permitted to accept referral or commission fees.
The fact that the advice group is also sending a lot of clients to the accountant raises other issues in terms of conflict of interest, for example, the accountant may feel obliged to continue working with the group. However, accountants need to remain objective and, in this case, ensure that recommendations to their clients are ethical and in their best interests.
The best approach is to look at what the individual client needs. Any referral should be specific to their needs, rather than just referring them to a group where there is an existing relationship. If there are doubts about the competence of the advice group, look into it. That way, the recommendations made to clients can be delivered with confidence.
