Friday 11 May 2007 LAWFUEL – The Law Newswire – The Supreme Court o…

Friday 11 May 2007 LAWFUEL – The Law Newswire – The Supreme Court of New South Wales today found that super switching advice given by First Capital Financial Planning Pty Ltd (First Capital), a Sydney-based financial planning firm, was misleading or deceptive, and did not have a reasonable basis. The Court made the orders by consent today in proceedings commenced by the Australian Securities and Investments Commission (ASIC) in December 2005. First Capital, using the business name Edplan, specialises in providing financial advice to NSW Government teachers.

Under the Corporations Act, people or organisations providing personal financial advice must give clients a statement of advice (SOA). These statements are intended to help consumers make an informed decision about whether or not to follow the advice provided by their financial adviser, and should be tailored according to the consumer’s specific needs. Between December 2004 and September 2005, First Capital advised 170 teachers to switch from their state government superannuation, First State Super, to a superannuation fund recommended by First Capital. The fees payable in the recommended fund were significantly higher than the fees payable in First State Super.

The Supreme Court found that the SOAs given to the teachers was misleading and deceptive and did not disclose a reasonable basis for the advice because: • the SOAs did not properly explain the differences in fees between the First State Super and the recommended fund; • the SOAs did not contain a comparison of the fees to be paid; • on most occasions the SOAs did not contain details about insurance, including the associated costs, which was available to clients in First State Super; • the SOAs failed to highlight the impact higher fees and costs have on potential returns; and • some of the SOAs contained misleading comparisons between the past performance of First State Super and recommended funds. The Court also ordered First Capital to write to all affected clients correcting the information they were given. ASIC’s Deputy Executive Director of Enforcement, Mr Allen Turton welcomed today’s outcome.

‘The Court orders serve as an important reminder to industry that advisers must give specific consideration to a client’s existing superannuation fund before recommending a switch, whether or not it is on their approved product list.’ ‘ASIC is concerned to help consumers make informed choices about their superannuation and to stamp out practices that are detrimental to this goal such as those engaged in by First Capital’, Mr Turton said. ASIC also accepted an enforceable undertaking from First Capital which compliments the Courts orders. If any First Capital client decides to return to First State Super but is worse off than if they had remained with First State Super, the enforceable undertaking ensures that First Capital will reimburse them with this amount. A copy of the enforceable undertaking is available from the ASIC website, www.asic.gov.au. First Capital Financial Planning, which is based in Sydney, is not associated with First Capital Corporate Limited, based in Perth, or First Capital Securities Limited and First Capital Finance Pty Ltd which have offices in various capital cities. For further information contact: Allen Turton Deputy Executive Director, Enforcement Telephone: 02 9911 2338 Mobile: 0411 549 236 Danielle Huck ASIC Media Unit Telephone: 03 9280 3407 Mobile: 0417 540 769

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