Morgan is a 55-year-old owner of a small catering business on the outskirts of Sydney. It has around 10 employees. She works part-time as she lives with her sick mother who has middle-stage Alzheimers. There is a lot required of anyone caring for Alzheimer’s patients. But since the damage of Alzheimer's is progressive and always unique, the duties of a caregiver in these situations can be extensive. Not only must the caregiver provide the senior with a variety of services, but there are a variety of challenges the caregiver faces. This can be especially true for family caregivers. Morgan is under tremendous stress and suffers from depression. Despite her mental health problems, Morgan is her mother’s primary caretaker even though there is a nurse who attends to her mother almost every day. The caretaking responsibilities contribute to her already existing stress. However, she has been diligently taking her medications and managing to reduce the negative impacts of her condition to the best of her capabilities.

Morgan’s grandparents passed away and she saved up $180,000 from the proceeds of selling their house. Morgan did not want to spend the money recognizing that there could be a good opportunity to invest to guarantee some steady returns to help her save up for her retirement. Also, she was expecting that the returns could help her to hire a full-time caretaker to look after her ailing mother.

With this in mind, she contacted Thomas – a financial adviser and authorized representative of Ricca Pty Ltd, and went to see him. Morgan explained that she wants to increase her wealth before her retirement and was interested in investing in low-risk financial products because she did not want to lose her savings due to highly volatile financial markets. Morgan also mentioned that she is a member of the superannuation fund operated by XYZ SuperFund Ltd and she asked Thomas whether to switch to the other superannuation fund operated by ABC Fund Ltd. She mentioned that she wanted to pay lower fees and generate better returns. Also, she mentioned whether her business Catering Pty Ltd could buy motor vehicle insurance for their vans.

During their meeting, Thomas gave her a Financial Services Guide. After careful examination, Morgan signed a contract with the licensee. Thomas asked questions about Morgan’s financial situation: her earnings and debts, etc. Morgan explained that she was doing ok despite her car loan of $20,000 and credit card debt of $3000. She told Thomas about her part-time work and tremendous stress due to her responsibility to care for her deteriorating mother. Thomas was taking some notes. After listening to her, he told Morgan that different investment options could be available for her. But before he can recommend them, he would like to introduce one option for her and that is to invest in Technologia Ltd. According to Thomas’ explanation, their shares would deliver profit growth of at least 30% this financial year. Thomas mentioned that this was a great opportunity to earn big returns and have a comfortable retirement in the coming years. Morgan was impressed by this investment option and followed his advice by investing in Technologia Ltd. She was also informed about rolling over her superannuation fund XYZ SuperFund Ltd to another fund and investing in a related company of Ricca Pty Ltd called Incentivised Management Systems Ltd (IMS). During their meeting, Thomas used pressure tactics and words to emphasize that the companies were solid as rock and safe as a bank. He highlighted that these investments were solid and based on his research, their shares and returns will be skyrocketing. Thomas forwarded a Statement of Advice to Morgan 15 days after their meeting.

A couple of months later, Technologia was placed in liquidation. Morgan will likely lose all her investments and she is devastated. She attempted to contact the licensee and complain but to no avail.

Evidence has revealed the following:

• Technology was a high-risk investment. The licensee and its authorized representatives were receiving commissions when recommending their financial products. Thomas did not discuss the risk of the client losing her money and assets, which could affect her ability to increase her wealth. On the contrary, this investment option was presented as lucrative and exclusive. Morgan was not aware of any commissions.
• IMS Ltd provides soft dollar benefits: it pays a substantial sponsorship fee for the licensee and authorized representatives for presenting information about their financial products. Other soft dollar benefits include invitations to attend overseas conferences, business class flights, five-star accommodation, and networking dinners in the most luxurious restaurants for financial advisers fully paid for by IMS Ltd. Nothing was disclosed to Morgan.
• Clients like Morgan relied on Thomas’ advice and assumed that investing their superannuation in IMS was allowed. However, the strategy Thomas recommended, facilitated, and allowed for his clients, resulted in his clients breaching the restrictions on the early release of superannuation benefits, which is not legally permissible and appropriate.
• Ricca Pty Ltd has restrictions on its licensee regarding motor vehicle insurance. Thomas recommended Morgan’s business buy insurance from Insurance Ltd. The restrictions were not disclosed to Morgan. What is more, Insurance Ltd pays high commissions to persons selling their insurance products, which was not disclosed. When Ricca Pty Ltd discovered these issues, it failed to report them to ASIC in a timely manner. Breach reporting is integral to board oversight and risk management of the licensees.
• ASIC discovered that the licensee did not adequately train its representatives, including Thomas. There is no internal dispute resolution in place and clients often do not know who to contact in case of complaints. There is no adequate risk management system. Risks to the business and consumers are not identified and not documented.
• ASIC discovered that Ricca Pty Ltd advertised on their websites that some transactions are free on an account where the account is in fact subject to account-keeping or monthly fees. While it is true that there is no additional charge for a particular transaction, there is nevertheless a cost to using the account. The word ‘free’ conveys a strong impression and should not be used where there is any charge to use the product.

Discuss all relevant legal issues raised in this question. Refer to relevant Australian laws.