Federal Court cracks down on ‘cookie cutter’ SMSF advice and conflicted bonuses
The Federal Court has delivered a clear warning to financial services licensees: generic, ‘cookie cutter’ advice and bonus structures that reward conflicted recommendations will not be tolerated.
On 24 April, the Federal Court of Australia handed down its penalty judgment in Australian Securities and Investments Commission v DOD Bookkeeping Pty Ltd (No 2) [2025] FCA 395, following its earlier liability judgment on 20 December 2023. This decision highlights how Australian Financial Services Licensees (AFSL holders) may breach their obligations by relying on standardised, templated financial advice. It also deals with how bonus structures for employees may breach the rules on conflicted renumeration.
Summary
In this case the Court found that:
- the AFSL holder breached its obligations under the Corporations Act to provide appropriate advice that was in the best interests of clients. Instead, it issued generic, ‘boilerplate’ advice that didn’t consider client’s individual circumstances
- it also breached the conflicted renumeration provisions by paying bonuses to advisers when properties settled – creating a real risk that this influenced both the financial product recommended and the advice given
- individual advisers, as ‘representatives’ of the AFSL holder, also breached conflicted renumeration laws by accepting these bonuses.
Background
Equiti Services Pty Ltd (Equiti), now in liquidation, provided financial advice to clients and offered SMSF establishment and administration services.
Between May 2015 and April 2018, Equiti paid $130,250 in bonuses to three employee financial advisers – XX, YY and ZZ. These advisers provided advice to 165 clients, encouraging them to roll over their super into self-managed super funds (SMSFs) and have the trustee of the SMSF use those funds to buy property via a related entity, Equiti Property Pty Ltd.
The advice was delivered through templated statements of advice (SOAs), issued on a company letterhead. These documents used standardised language and included a generic summary of investment risks.
Under its AFSL, Equiti was permitted to provide 'financial product advice' and to deal in various classes of 'financial products'. Its advisers, as employees, were considered ‘representatives’ of Equiti under ss 960 and 910A of the Corporations Act.
ASIC alleged that Equiti breached its best interest obligations under s 961K of the Corporations Act by giving clients standard, templated advice that didn’t consider their individual needs. It also alleged breaches of s 963E(2) and s 963J, by paying bonuses to advisers that were tied to property settlements – creating a conflict in how advice was given.
Proceedings
Division 2 case - failure to act in best interests
The Division 2 case focused on advice given to 12 individual (or paired) retail clients who all received the same templated SOA from Equiti.
ASIC relied on section 961K(2) of the Corporations Act, which makes an AFSL holder responsible if a ‘representative’ (other than an ‘authorised representative’) breaches the best interests duty (s 961B) or fails to provide appropriate advice (s 961G).
The Court found that:
- The SOAs were not tailored to clients needs.
- They used boilerplate wording and stated nearly identical objectives for each client
- There was no evidence that advisers considered alternatives to investing in property via an SMSF, or weighed up the pros and cons.
In almost all cases, Equiti’s advisers failed to prioritise client objectives or consider the and complexity of setting up an SMSF. Some specific failures included:
- Not recommending government co-contribution strategies, despite a client earning only $10,000 a year
- Ignoring a client’s main goal – to save for their children’s education
- Overlooking cash flow issues linked to a redundancy.
In some cases, clients were also not given enough time to properly understand the advice given to them before signing the authority to proceed.
The Court found that s 961B and s 961G had been breached in relation to all 12 sets of clients.
Division 4 case - conflicted renumeration
Bonus payments ranging from $750 to $1,500 were paid to advisers XX, YY and ZZ after each property purchase was completed.
ASIC alleged that these payments were ‘conflicted renumeration’ under of s 963A of the Corporations Act. It argued specifically that s 963J was breached by the giving of renumeration and s 963E(2) was breached because the advisers, as ‘representatives’ of Equiti, accepted them.
Although the Court had to consider certain exceptions under s 1528 of the Corporations Act (which can exclude the application of Division 4 in some situations), it found that Division 4 did apply to all but five of the SMSF clients who already had an SMSF in place.
Under s 963J, employers (such as Equiti) must not pay conflicted renumeration to employees if it could be reasonably expected to influence the financial product recommended, or the advice provided.
The Court noted that:
- The bonuses were substantial in both amount and proportion. For instance, adviser ZZ earned $101,750 in 2017, which included around 91 bonus payments
- There was a clear incentive to recommend establishing an SMSF and using it to buy property – since bonuses were triggered by property settlements.
The Court found that all elements of s 963J were satisfied, and that s 963E was also breached by the advisers by accepting these payments.
Orders
The Court imposed the following penalties:
- $8.3 million for breaches of the best interests duty (Division 2); and
- $2.27 million for breaches of the conflicted renumeration rules (Division 4).
Total penalty: $11.03 million
Significance
This case offers important lessons for ASFL holders and financial advisers, especially those providing SMSF-related advice.
It shows the risks of:
- relying on generic, standardised advice that fails to reflect clients’ personal circumstances; and
- paying (or receiving) bonuses that could be seen as influencing advice – especially where those bonuses are tied to product outcomes.
It also signals ASIC’s continued focus on misconduct involving superannuation and conflicted renumeration – areas it considers high enforcement priorities.
Where conduct is found to be deliberate or systemic, courts are likely to respond with strong penalties to protect retail clients.
If you’d like to understand what this decision means for your business, or need support reviewing your advice and renumeration structures, please get in touch with our team.
This article was written with the assistance of Ruby Wensor, Law Graduate.
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