In a statement released yesterday, the Australian Securities and Investments Commission (ASIC) announced it has cancelled the licence of the advice firm after it “failed to obtain professional indemnity (PI) insurance and entered voluntary administration”. The firm's credit licence was also cancelled.
A report to creditors from administrators Grant Thornton in July revealed that the company has not had active PI insurance in place since at least April, in contravention of its AFSL conditions.
The licence cancellation follows a number of disputes lodged against the company by aggrieved former clients with the Financial Ombudsman Service (FOS), claiming damages for inappropriate advice.
An FOS determination handed down on June 12 found that Chambers Investment Planners (CIP) advisers perpetrated multiple breaches of the Corporations Act 2001 in the advice provided to a former client.
The client was issued a statement of advice in 2006 which recommended borrowing to invest in the Macquarie Geared Equities Investment (GEI) and Willmott Forests Project (Willmott) – bringing the number of clients advised to invest in these schemes to a minimum of four, despite very different financial circumstances.
When, in 2010, Willmott Forests Pty Ltd went into liquidation following the collapse of the scheme, the client lodged a complaint with the FOS seeking damages.
An FOS panel said its “main concern with the advice relates to the nature of the investments recommended and the use of 100 per cent loans for the investments using a double gearing strategy”.
The determination stated that in the panel’s view, “both the GEI and Willmott investments were high risk” and that the risk was “not clearly explained to the applicants”.
It also found that the portfolio recommended by the CIP adviser was “poorly diversified, which increased the risks that the applicants would be taking and was inappropriate for their circumstances”.
In addition, the panel voiced doubts about “the extent to which the adviser did understand the products that he was recommending”, but said this was not a core focus of the FOS determination.
The inappropriate advice and risk assessment was found to be in breach of the Corporations Act and as such, the FOS found in favour of the former client, directing CIP to pay a total of roughly $200,000 within 28 days of the determination.
However, in July, CIP went into voluntary administration and InvestorDaily understands the former client has not received the awarded damages.
Perth-based lawyer David Huggins – who is representing a number of former CIP clients – has previously suggested the move into administration may be a device by which the financial planning firm can shield itself against FOS claims and paying awarded damages.
CIP managing director George Takla strongly refutes the suggestion, indicating he has sought legal advice about Mr Huggins’s comments.
“Chambers strongly objects to Mr Huggins providing his personal opinion about the standard of advice provided to clients,” Mr Takla told InvestorDaily in August.
The appointed Grant Thornton liquidators are now reviewing options that are in the best interests of creditors, including a Deed of Company Arranngement – which InvestorDaily understands is the option proposed by Mr Takla and his partners – and a possible wind-up of the company.
