ASIC reports on how large financial advice firms have dealt with poor advisers

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ASIC has released the findings of its review of how Australia’s largest financial advice firms have dealt with past poor advice and non-compliant advisers, including how these firms have dealt with affected customers.

The review—which forms part of ASIC’s broader Wealth Management Project—was focussed on the conduct of the financial advice arms of AMP, ANZ, CBA, NAB and Westpac. It arose out of serious concerns about past adviser misconduct, and had the broad objective of lifting standards in major financial advice providers.

The review looked at:

  • how the firms identified and dealt with non-compliant conduct by their advisers between 1 January 2009 and 30 June 2015
  • the development and implementation by the firms of large-scale review and remediation frameworks to remediate customers impacted by non-compliant advice, and
  • the processes used to monitor and supervise the firms’ advisers, focussing on background and reference-checking, the adviser audit process and use of data analytics.

ASIC Report 515 Financial advice: Review of how large institutions oversee their advisers (REP 515) covers the key findings of this review and also provides an update on ASIC’s actions against the advisers who have been identified as raising serious compliance concerns, as well as the institutions’ progress in developing review and remediation programs.

As of 31 December 2016, ASIC had banned 26 advisers identified in this review who demonstrated serious compliance concerns, and has ongoing investigations or surveillance activities in relation to many others.

A total of approximately $30 million has been paid to 1,347 customers who suffered loss or detriment as a result of non-compliant conduct by advisers during the period of this review. (This amount is in addition to the compensation being paid by the institutions as part of the ‘fee for no service’ compensation payments set out in Report 499 Financial advice: Fees for no service (REP 499)).

ASIC Deputy Chairman Peter Kell said, ‘ASIC’s report sets out the significant work that has been done by the major financial advice institutions to implement large-scale review and remediation programs to identify and remediate customers impacted by poor advice given in the past. ASIC is working closely with these institutions as they deal with customers who have been affected by the past non-compliant advice. The programs all have third-party oversight and assurance.’

‘ASIC acknowledges the work undertaken by the financial advice institutions to improve their practices, and broader compliance approach, since the period of conduct under review, supported by recent legislative and regulatory reforms.

‘However, there is further work to be done to assist in re-building consumer trust and confidence in the financial advice industry,’ he said.

ASIC identified a number of areas of concern where further improvements need to be made, including:

  • failure to notify ASIC about serious non-compliance concerns regarding adviser conduct
  • significant delays between the institution first becoming aware of the misconduct and reporting it to ASIC
  • inadequate background and reference-checking processes, and
  • inadequate audit processes to assess whether the advice complied with the ‘best interest’ duty and other obligations.

Mr Kell said, ‘Failure or delay in notifying ASIC of suspected serious non-compliant conduct significantly affects our ability to take appropriate enforcement or other regulatory action. More importantly, it may also result in an increased risk of customer detriment as so-called ‘bad apple’ advisers continue to work in the industry.’

‘Strengthening breach reporting requirements will be an important issue in the current review of ASIC’s enforcement powers announced by Government in October 2016,’ he said.

ASIC acknowledged the Australian Bankers’ Association’s recently announced Reference Checking and Information Sharing Protocol. ‘There will be considerable focus on the operation of this protocol, and we encourage the industry to take a rigorous approach to ensure it is effective so that we see rapid improvements in the checking and provision of adviser references,’ said Mr Kell.

ASIC also welcomes the development of data analytics and key risk indicator tools by all of the advice institutions to improve the early identification of potentially non-compliant advice.

ASIC has developed a number of checklists for all advice licensees and compliance consultants to consider when:

  • conducting background and reference checks before appointing a new adviser (refer Appendix 2 of REP 515)
  • auditing  advisers to assess their compliance with the best interests duty and related obligations when providing personal advice (refer Appendix 3 of REP 515), and
  • developing and implementing Key Risk Indicators to identify high-risk advisers (refer Appendix 4 of REP 515).

‘It is critical that customers are able to get financial advice they can trust. ASIC expects internal processes to support core values of putting the customer first and where there are failings, for advice firms to act quickly to provide a response in the interests of their customers. This is a message for both large and small advice firms,’ Mr Kell said.

ASIC’s MoneySmart website has a new financial advice toolkit to help clients navigate the financial advice process and understand what service they should expect from an adviser. It also has useful information about what to do if you want to make a complaint about your adviser.

REP 515 Financial advice: Review of how large institutions oversee their advisers and checklists

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