The Holley Nethercote Imac Legal 2016 report deserves special comment. This is because some ASIC staff claimed this report warned Dover the CPP was deceptive. This is not true. In fact, the Holley Nethercote Imac Legal 2016 report in effect reassured Dover all was in order. It had no concerns.
The Holley Nethercote Imac Legal report included this paragraph in the covering email:
“As an aside, in the process of redrafting the report and re-examining the role of the Client Protection Policy we noticed the sentence on the front page of the Policy “Under the Corporations Act Dover is not responsible for anything done by your adviser which is not within the authority provided by Dover in these circumstances.” Given section 917B of the Corporations Act we think this statement is wrong and misleading. We have not fully reviewed the contents of the policy but we thought bringing this to your attention was warranted.” (emphasis added)
Dover read this short email on or about 16 May 2016 but did not act on it because it thought Mr Nethercote was wrong. Dover believed Mr Nethercote did not appreciate a notice had been provided under section 917D of the Corporations Act, so the scope of section 917B was in fact limited as described by Dover in the words highlighted in yellow above, ie
“Under the Corporations Act Dover is not responsible for anything done by your adviser which is not within the authority provided by Dover in these circumstances.”
If a client is provided with a section 197D notice this is a correct and complete sentence. It is not a wrong and misleading sentence. So there was no wrong or misleading statement in respect of section 917B of the Corporations Act, as suggested by Mr Nethercote. Of course, if a section 197D notice was not given Mr Nethercote would be right, ie the yellow highlighted sentence would be “wrong and misleading”. But every Dover client was provided with a section 197D notice. So the highlighted sentence is wrong.
Mr Nethercote’s instructions were to review Dover’s SOA review process. This included the CPP. Apart from the above paragraph, literally provided as an aside in an e-mail not part of the report itself, Mr Nethercote did not alert Dover to any concerns about the CPP. To the contrary, the Holley Nethercote Imac Legal report in effect provided Dover with comfort all was well and the CPP was in order and of no concern.
The Holley Nethercote Imac Legal 2016 compliance report made numerous references to the CPP and did not express any concerns it was apt to mislead or deceive.
An aside: why did Dover engage Holley Nethercote?
Dover had met Tim Nethercote at an ASIC seminar in 2012. Tim was the trainer and the seminar discussed the role of the responsible manager. ASIC obviously thought highly of Tim: presumably ASIC had innumerable senior staff able to present an entertaining and informative seminar on the role of the responsible manager. But instead ASIC called Tim.
Dover consequentially engaged Tim’s legal firm, Holley Nethercote, to consult on compliance matters. It reviewed Dover three times. Once in 2013, where it concluded Dover had the most robust SOA review processes it had seen. Once in 2015, as one small part of the huge First State Super deep dive into McMasters’ Accountants Solicitors and Financial Planners group (centering on Terry’s advice to his 1,000 plus doctor clients). And once again in 2016, when Terry told Tim Dover was under ASIC surveillance and Dover needed a report to help show ASIC it was doing everything it had to do, and more, to be a compliant AFSL.
We stress Dover volunteered the 2016 Holley Nethercote Imac Legal report to ASIC. It was an otherwise legally privileged document. Dover did not have to provide it. Dover gave it to ASIC because Dover wanted to do its best to help the ASIC surveillance team get a handle on Dover. Dover obviously knew the 2016 Holley Nethercote Imac Legal report discussed the CPP.
Illustrative sample of Holley Nethercote Imac Legal references to the CPP
It’s appropriate to reproduce the main references to the CPP in this report. On page 6:
“We also note that, while the Dover Client Protection Policy, includes a disclosure about the client seeking specific tax advice regarding any income tax implications of proposed transactions, the SOA review checklist does not inquire about whether an SOA contains tax (financial) advice and whether an adviser is registered with the Tax Practitioners Board. While these disclosures are not mandatory in the SOA itself, in our experience it is best practice in the industry to include the disclosures and to check the registration status of advisers who provide tax (financial) advice under the Tax Agents Services Act regime. Accordingly, we think Dover’s checklist should cover off this issue.”
On the bottom of page 6:
“Dover has introduced the ‘Client Protection Policy’ into its advice process since HN Law undertook its initial review in 2013. This document which we are instructed is handed to the client both with Financial Services Guide and the SOA, is incorporated by reference into the SOA and includes several key disclosures, including disclosures around insurance and the duty of utmost good faith, taxation advice, SMSFs, limits on an adviser’s authority, referral arrangements, and several other disclosures. This policy gives clients additional confidence in Dover and the adviser with whom they are dealing. While we viewed this document as part of this current review, we concluded that, while it includes several useful and necessary disclosures, it is of no probative value and does not materially impact the SOA review process itself. We were instructed the Client Protection Policy is the same for each adviser; it is not tailored to individual advisers. We are not in a position to know if all disclosures are correct for every adviser.”
At the bottom of page 7:
“Dover’s CPP does include a disclosure about the client’s duty of utmost good faith as well as the following disclosure regarding new risk insurance contracts:
“Subsection 29(3) of the Insurance Contracts Act 1984 allows a claim to be denied by the insurer within three years of any new insurance policy being set up in the insured (i.e. you) failed to disclose all relevant facts. The three-year period starts afresh once a new insurance policy starts.” However, our view is that this information, by virtue of section 947D(2) & (3) and regulation 7.7.09B(6), must be in the SOA itself and cannot be incorporated by reference. We, therefore, recommend Dover include the relevant disclosures in the SOA, not just the incorporated materials.”
Getting back to the main issue: three pertinent questions
First, why would Dover read the 2016 Holley Nethercote Imac Legal Report and not think each of Holley Nethercote and Imac Legal were comfortable with the CPP?
Second, how could ASIC read the 2016 Holley Nethercote Imac Legal Report and not think each author was comfortable with the CPP?
Third, how could the ASIC officers investigating Dover in 2016 and 2017 not be aware of the CPP after reading:
- these primary documents:
- Dover Financial Advisers Pty Ltd (Dover) – Discussion Paper 12 December 2016
- Stakeholder Referral to Financial Services Enforcement dated 29 March 2017
- Dover Financial Advisers Pty Ltd – Memo to Ops dated 31 January 2017
- Case Study 1 AFS Licensee under surveillance authorizing and termination representatives ASIC Enforcement Review Position and Consultation Paper 8 ASIC’s Directions Powers dated 8 November 2017 (a paper to Treasury, the Attorney General and the CDPP using Dover as an example of why ASIC needed increased powers)
- including these two key paragraphs:
 For example, Mr Tim Mullaly during the June 208 enforceable undertaking “negotiations”. Mr Mullaly insisted on including a paragraph falsely saying Terry McMaster was advised the CPP was deceptive, but did it anyway. Mr Mullaly was ultimately persuaded to leave this paragraph out because it was not true. It appears in the various draft enforceable undertakings.
 The history of this section 197D process is set out in Chapter X. It is not sinister. It was originally suggested by FOS.
 First State Super completed a detailed due diligence on the advice of Terry McMaster in 2015 as part of an offer to purchase McMasters
 Holley Nethercote sub-contracted the leg work to Ian McDermott, of Imac Legal & Compliance, another recognised compliance expert
 More than 30 senior ASIC executives contributed thoughts to Case Study 1 AFS Licensee under surveillance authorizing and termination representatives ASIC Enforcement Review Position and Consultation Paper 8 ASIC’s Directions Powers dated 8 November 2017
 Dover Financial Advisers Pty Ltd (Dover) – Discussion Paper dated 12 December 2016