Getting tough on untrustworthy advisors

Recent AFSA investigations into complaints by debtors and creditors have uncovered some insolvency practitioners are – sometimes unknowingly – working with untrustworthy advisors. These are the unscrupulous, unregulated and unlicensed advisors who prey around the edges of the insolvency system, often exploiting vulnerable people in financial crisis. Their dishonest advice is either flagrantly illegal – actively hiding assets or abetting fraudulent activity – or, at the very least, unethical – making their client’s financial situation worse than it needs to be.

From the deliberate mercenary to the lazy incompetent, untrustworthy advisors are doing the insolvency profession a disservice, potentially leading to:

  • Reputational risk – With the financial services industry already under the long shadow of the Royal Commission, the reputation of the insolvency profession can easily be damaged by a few bad apples. No wonder insolvency practitioners have told ASFA that untrustworthy advisors are their ‘No. 1 concern’.
  • Financial loss – If an untrustworthy advisor persuades a debtor to hide or dispose of their assets before they go into an insolvency option – everybody loses. There are fewer assets to realise, which equates to lower fees for insolvency professionals and smaller dividends for creditors. The debtor also leaves themselves open to prosecution.


What is ASFA doing about untrustworthy advisors?

AFSA has no tolerance for untrustworthy advisors – people who provide false or misleading information about insolvency options and processes, taking advantage of vulnerable people and disadvantaging creditors.

We use all the powers at our disposal to disrupt the activity of untrustworthy advisors, including:

  • Educating debtors – For the last 12 months, we have developed strategies and resources to increase consumer awareness about the risks imposed by untrustworthy advisors. This includes specific warnings and videos on the AFSA web site and issuing media stories about those who are convicted after receiving advice from untrustworthy advisors.
  • Disrupting suspicious advice activity – When we discover or are notified of potentially untrustworthy advisors, we investigate and take action to disrupt their activities. Each year, we inspect hundreds of personal insolvency administrations, including attending and disrupting creditors’ meetings.
  • Putting pressure on insolvency practitioners who engage with untrustworthy advisors – Even if you are doing so unwittingly, working with an untrustworthy advisor will attract AFSA’s attention and lead to ongoing scrutiny.
  • Working with other agencies – We cooperate and actively engage with other regulators and law enforcement agencies to disrupt bad behaviour and refer suspicious cases as appropriate.

We will continue to look at the tools at our disposal, the powers that we have and by working in partnership with others, including other law enforcement agencies, aim to minimise the harm being caused by untrustworthy advisors and support people to use sources of trusted advice.

Why we need your support

Untrustworthy advisors take great care to fly under ASFA’s radar but are more likely to be careless when dealing with insolvency practitioners. We rely on the industry, and community, to report any activity that has the potential to take unfair advantage of people who use the personal insolvency system.

Tell-tale signs of an untrustworthy advisor

Please watch out for advisors who are trying to cut everyone else, including you, out of the equation. You might notice:

  • An advisor giving a trustee their own contact address as the contact address for the bankrupt and creditors
  • An advisor insisting all enquiries by AFSA or Trustees’ staff be done through them instead of the bankrupt or creditors
  • Mortgages being taken out on property just prior to a person becoming bankrupt
  • False companies being used to claim manufactured debts
  • A high number of ‘friendly’ creditors recorded as unsecured debts
  • A lack of supporting documents of debts owed
  • Late inclusion/submission of proofs of debt in compositions or personal insolvency arrangements
  • Potential misuse of the Personal Property Securities Register (PPSR).

Play your part

Untrustworthy advisors undermine confidence in the personal insolvency system. We all need to work together to shut down those who seek to profit from intentionally misleading people about informal insolvency options.

I encourage everyone, including insolvency practitioners to:

  • Report any concerns about potential untrustworthy behaviour or suspicious activities to ASFA via our online tip off service
  • Encourage best practice in your own firm by engaging with industry professional bodies who provide excellent professional training and uphold strong ethical standards