Hiring right: How to spot a high-risk adviser before ASIC does

Being an AFS licensee is a significant responsibility-each licensee needs to ensure that all the advisers it authorises comply with the financial services laws and meet high professional and ethical standards. Failure to properly vet advisers before onboarding can expose firms to regulatory penalties, reputational damage, and financial losses-none of which pair well with a good glass of wine.

Step-by-step guide to vetting advisers before onboarding

To avoid that reputation-crushing negative review, here is a step-by-step approach to identifying high-risk advisers that shares real-world examples of compliance failures and provides checklists to strengthen due diligence processes.

Step 1: Conduct comprehensive background checks

A thorough background check is essential to uncover any red flags early. Key areas to investigate include:

• ASIC's Financial advisers register - Verify past employment, qualifications, and disciplinary history.

• Banned and disqualified register - Ensure the adviser hasn't been banned or disqualified by ASIC.

• Credit and bankruptcy checks - Assess financial stability to identify potential risks.

• Police checks - Identify any criminal history that could affect their ability to act ethically.

• Reference checks - Speak with former employers to verify claims and gauge performance. If the adviser flinches at the mention of a police check, that is usually a clue.

Step 2: Review regulatory and compliance history

A candidate's past regulatory history provides critical insights into their professional conduct.

Review:

• Any past breaches or regulatory action by ASIC or other regulatory bodies

• History of non-compliance or failure to meet reporting obligations

• Any legal actions involving clients alleging misconduct

• Reports from previous AFS licensees to identify problem areas from compliance audits and file reviews.

If their compliance record has more marks than a toddler's colouring book, proceed with caution.