A recent applicant boasted he was an “equities investment adviser” and not a financial planner. This did not get far with us, since Dover is all about financial planning. But we interviewed him anyway. It turned out he was trying to start a boiler room operation selling quasi-stock broking services including operating e-trade accounts for his clients. We had quite a few concerns, including:

  1. his proposed business sounded perilously like an individually managed account (IMA). Dover does not allow IMAs because they:
    1. are not permitted under our licence, which is the way we like it;
    2. usually involve trading shares, which is a great way to lose money fast; and
    3. are incredibly risky, which is something their operators will find out next time the market turns south for an extended period;
  2. his proposed business model flaunted the SOA/ROFA advice rules, with a very real risk that advice would not be documented in line with RG 175, which means the adviser is responsible for any losses the clients sustain, and is open to penalties under the Corporations Act;
  3. the adviser not having the skills, training or experience to advise on a large number of shares including, in effect, every share on the ASX; and
  4. the adviser’s comment that when his clients said they wanted to buy a speculative mining stock he would have to “move very quickly”, really frightened me for many reasons including the fact that:
    1. for excellent reasons such stocks are not on Dover’s APL, and
    2. the adviser obviously did not understand:
      1. the financial advice process,
      2. Dover’s compliance processes, or
      3. FOS’s complaint processes.

We outlined our concerns and encouraged him to instead think about setting up a more traditional financial planning practice, albeit one with a distinct emphasis on direct shares. We suggested he:

  1. think in terms of 30 years not 30 days;
  2. focus on advising clients rather than selling clients;
  3. advise on investment structures such as SMSFs, companies and trusts;
  4. consider the particular circumstances of each client and make sure the advice is appropriate to them and in their best interests;
  5. only recommend blue chip shares, with a minimum holding period of at least ten years;
  6. have regular 6 monthly meetings with clients to discuss opportunities and threats;
  7. ensure RG 175 is complied with at all times; and
  8. encourage his clients to run their own E-trade account to avoid the obvious risks connected to the adviser running it.

Doing this means over time he would build up a profitable, valuable, sustainable and compliant practice that was separated from him as the owner and not dependent on short term market moves and frantic manning of client’s e-trade accounts.