ASIC has released a report on the information it received in 2010 from the top 20 financial services licensees on their practices.
To help monitor the gatekeepers of the financial advice system and improve industry standards, ASIC requested information about the 20 largest Australian financial services licensees that provide financial product advice to retail clients. This covered licensee business models, training of advisers, monitoring and supervision of advisers, product and strategic advice and complaints handling and compensation. ASIC developed a set of risk indicators to assess the information gathered and identify policy and regulatory issues.
ASIC Chairman Greg Medcraft said, ‘Risk-based surveillance is an important part of improving standards in the financial advice industry and holding gatekeepers to account. The analysis of the information gathered has informed ASIC’s Risk-Based Surveillance Program and enabled us to identify which organisations to monitor and what industry risks to prioritise.
‘The review has enabled ASIC to continue to engage with the largest AFS licensees and provide them with individual feedback to assist with assessment of risks in their business. We have been encouraged by these discussions and acknowledge the collaborative and constructive approach they are taking to our feedback.’
ASIC’s Review of financial advice industry practice Report highlighted the following issues:
- Licensee business models – licensees must ensure that they effectively manage conflicts of interest in their business models. Disclosure alone will not always satisfy a licensee’s obligations and this needs constant oversight.
- Training of advisers – licensees should continue to give training a high priority as this lessens the risk of poor advice being provided.
- Monitoring and supervision of advisers – licensees must ensure their advisers comply with their stated procedures. Licensees must check references of new advisers to exclude ‘bad apples’.
- Licensees must report breaches and demonstrate remediation plans are in place.
- Licensees should retain access to client records at all times.
- Product and strategic advice – conflicts of interest need to be managed. It is important to educate clients about risk and return so that their expectations are more realistic.
- Complaints handling and compensation – licensees must handle complaints well. Licensees must ensure that their compensation arrangements (including PI insurance) adequately cover all the products and services they advise upon.
ASIC will approach the 30 next largest AFS licensees that provide financial product advice to retail clients with a reduced and more targeted questionnaire, which has been informed by the results of the first questionnaire. It is expected this second phase review will commence by the end of 2011. ASIC will not use its information-gathering powers to seek this information, unless requested to do so by the licensee, as feedback from the first questionnaire indicated that most licensees are willing to participate voluntarily.