The Australian Financial Security Authority (AFSA) has issued a national warning to people facing financial difficulties in the months ahead to take great care when engaging a financial advisor.
The warning was made by the Chief Executive of AFSA, Tim Beresford who released the report Untrustworthy Advisors: A hidden scourge in Australia’s personal insolvency system which highlights the prevalence of questionable advisors whose advice could see an innocent client facing prosecution and possibly imprisonment.
“Australians are facing the perfect storm for increased financial insecurity in the next 12 months,” Mr Beresford said, “making them vulnerable to dodgy insolvency advice.”
“On the back of a tough few years of fire, drought, flood and the pandemic, rising interest rates and cost of living pressures mean that more Australians may struggle to pay their bills and mortgages,” he said.
“The public needs to be aware that following untrustworthy advice may result in prosecution and possible imprisonment for both the individual and their untrustworthy advisor.”
Mr Beresford said the report explained that untrustworthy advice was hard to address because prosecution typically relied on the testimony of victims who may fear incriminating themselves, “despite the fact that AFSA’s Cooperation Assistance and Support Policy encourages people to cooperate in regulatory actions”.
He called on public and insolvency practitioners to help AFSA disrupt the business of untrustworthy advisors and cut them out of the system.
“During the pandemic, Australians developed a different relationship with their creditors as banks and utilities offered payment holidays,” he said.
“We’re hoping that greater levels of trust will encourage people to talk to their banks or creditors early and negotiate a repayment plan.”
Mr Beresford said the earlier people engaged with creditors, the more likely they were to find a workable solution that kept them out of the insolvency system.
He said people should ignore ads with ‘too good to be true’ promises, such as getting people out of bankruptcy within a few months – for a fee that benefitted the untrustworthy advisor and not the debtor.
“People should be aware that searching ‘can’t pay my debts’ on the internet or similar phrases can cause fake advice ads to appear in social media feeds,” he warned.
“These ads could be scams and should be treated as such.”
Mr Beresford said people should also be wary of advisors who created an unnecessary sense of urgency, suggested that a bankruptcy or debt agreement wouldn’t affect a credit rating, or who claimed they’d done this many times before and wouldn’t get caught.
He encourage people who believed they were being targeted by a dodgy advisor to use AFSA’s online tip-off service.
AFSA’s 11-page report can be accessed at this PS News link and its online tip-off services at this link.
