Tackling the scourge of ‘dodgy’ advisors

The rise in the number of unscrupulous advisors preying on consumers is becoming a major concern, a new report shows.

Australians have been doing it tough of late, thanks largely to the pandemic, floods and bushfires, and now rising interest rates and cost of living. And those in distress may find themselves becoming the target of unscrupulous advisors that may result in consumers unwittingly committing to criminal actions.

A report, published by the Australian Financial Security Authority (AFSA), shows the prevalence of such advisors, and how those at risk of bankruptcy and concerned about losing their assets and homes are possible targets. Called: “Untrustworthy Advisors: A hidden scourge in Australia’s personal insolvency system”, the report states that over the next 12 months, Australians will face the perfect storm for increased financial insecurity, thus making them vulnerable to “dodgy” insolvency advice.

Such advice may include hiding assets or using the Personal Property Securities Register (PPSR) to make false registrations. Untrustworthy advisers may also unnecessarily encourage people to declare insolvency when they could have instead negotiated a payment plan with their creditors.

AFSA Chief Executive Tim Beresford says consumers need to be aware that following untrustworthy advice may result in prosecution and possible imprisonment for both the individual and their advisor, adding “Like all successful scammers, untrustworthy advisers are persuasive, and their solutions seem highly plausible.”

Jirsch Sutherland Partner Lloyd Kerr says the increase in insolvencies and the growing pressure points for many Australian businesses and individuals is leading to an increase in “scam activity”. “More unscrupulous advisors are back to spruiking their wares,” he says. “As part of the AFSA’s continued pursuit of untrustworthy advisers, it has called on registered insolvency practitioners and the public to help it disrupt this unscrupulous practice and ‘cut them out of the system’.

“These unscrupulous operators are unregistered, whereas as Registered insolvency practitioners are heavily regulated and work within a legal framework.”

Kerr says one way registered insolvency practitioners can assist is where advisers have set up false debts to defraud creditors. “AFSA believes registered trustees have the best chance of spotting these actions when they’re reviewing proofs of debt,” Kerr says. “AFSA also highlights the need for trustees to be wary of vote stacking and to make sure they ask hard questions during meetings.”

Signs to watch out for

The AFSA report highlights how people can identify a potentially unscrupulous adviser, as they tend to:

• create an unnecessary sense of urgency
• encourage false or misleading statements in bankruptcy paperwork
• encourage false or misleading registrations on the PPSR
• suggest a bankruptcy or debt agreement won’t affect a credit rating
• claim they’ve done this many times before and won’t get caught
• use jargon and can’t back up claims

The report also notes that a minority of debtors are complicit in defrauding the insolvency system and actively seek out untrustworthy advice with the intention of avoiding paying their creditors. Beresford says AFSA’s stance is clear in such cases.

“Deliberate misuse of our personal insolvency system is not tolerated,” he says. “People who know they’re doing the wrong thing should be aware that we work closely with the Australian Federal Police to investigate these cases, with penalties that include jail time.”

Positive signs

Meanwhile, Jirsch Sutherland’s Lloyd Kerr says the relationships consumers developed with their creditors during the pandemic may be a positive for the future. “The AFSA report highlighted that Australians developed a different relationship with their creditors during this period as a result of banks and utilities offering payment holidays,” he says. “AFSA is hoping that as a result, greater levels of trust were established, and this trust will encourage people to talk to their creditors as soon as they get into financial difficulties and negotiate a repayment plan.”

But it’s important to stay vigilant, Kerr says, adding that Jirsch Sutherland knows many accountants, including its own team members, who have received emails from those claiming to be able to help “protect” clients and keep them away from registered insolvency practitioners.

AFSA states when seeking financial advice be aware of the following:

• Ignore ads that come with “too good to be true” promises, such as being able to get people out of bankruptcy within a few months. These ads usually require a fee that benefits the untrustworthy adviser and not the debtor.
• Often an online search using the phrase: “can’t pay my debts” can generate fake advice ads in social media feeds. These ads could be scams and should be treated as such.
• Advisers who create an unnecessary sense of urgency, suggest a bankruptcy or debt agreement won’t affect a credit rating, or claim they’ve done this many times before and won’t get caught, are all red flags that the adviser may be unscrupulous.

Anyone with information about an unscrupulous adviser should use AFSA’s online tip-off service to report them.

Help is available

Those facing financial difficulties, can seek free financial counselling from the National Debt Helpline: 1800 007 007. They can also contact a registered personal insolvency practitioner such as Jirsch Sutherland.

“At Jirsch Sutherland, we pride ourselves on acting with integrity, honesty and empathy, and providing practical and innovative solutions,” Kerr says. “Unlike some disreputable advisers, we’re not here to help businesses illegally phoenix.”

He adds the organisation’s registered liquidators and bankruptcy trustees around the country have vast experience helping businesses and individuals in financial distress to turn the situation around.

“We can’t stress enough that consulting with our team doesn’t necessarily mean the ‘end of the line’,” he says. “We work with clients and trusted advisers to find the best way forward for our clients. That means supporting and protecting them, being candid about what can and cannot be achieved, ensuring everyone is treated fairly and respectfully, and bringing about a resolution as swiftly as possible. There are myriad solutions to explore depending on the situation.”