Financial adviser red flags

The regulatory landscape is unforgiving-adviser misconduct can lead to significant enforcement actions against individuals and licensees, including banning orders, licence revocations, substantial financial penalties, and criminal proceedings in extreme cases.

Thankfully, misconduct by financial advisers can often be foreshadowed by certain early warning signs. Below, we will explore ten such red flags-informed by the Australian Securities and Investments Commission (ASIC) enforcement patterns, Australian regulatory data, and notable case studies, with international benchmarking for context. Each warning sign is illustrated with relevant examples demonstrating why proactive monitoring and intervention systems are essential to your risk management framework.

By recognising these patterns early, you can implement targeted supervision strategies, protecting your advisers, your licence, and the clients who rely on your vigilance.

1. Deviations from approved advice processes

Advisers are generally expected to follow their licensee's approved advice process, for example, conducting proper fact-finds, using approved product lists, and complying with the best interests duty. Repeated unapproved deviations-such as skipping required steps or recommending products outside the approved list-are serious red flags. These behaviours suggest an adviser circumvents compliance controls, often to the detriment of clients.

Case in point: RI Advice

In the 2021 Federal Court case, Australian Securities and Investments Commission v RI Advice Group Pty Ltd, ASIC proved that RI Advice (a licensee) lacked adequate processes to detect when its representatives were "avoiding advice quality checks or recommending non-approved financial products". The court found these serious flaws enabled a rogue adviser to give inappropriate advice. In other words, the adviser-John Doyle-bypassed the firm's usual vetting process and sold products which were not on the approved list-a clear breach that the firm failed to catch.

This underscores that if an adviser repeatedly works around established procedures, they and their firm face real consequences. A similar observation could be made about Don Nguyen, who gave inappropriate advice while working for Commonwealth Financial Planning, and whose misconduct sparked the 2018 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission).