SME planners, accountants and life advisers next in line for ASIC scrutiny


Although recent ASIC enforcement action and the Royal Commission have predominantly focused on the major banks and AMP, it would be foolhardy to assume that non-bank advice firms are not a focus. Patterns emerging teach us that you are the next focus.

How do we know this?

Well, ASIC’s modus operandi is to first investigate potential regulatory issues within big targets – where misconduct is widespread and evidence is easy to find. This serves as a learning exercise, helping ASIC to ascertain the nature and scale of misconduct, and what to look for.

Investigation complete, ASIC generally releases a report on its findings and concerns. You’d expect that diligent compliance teams would read those reports, look within for similar problems, notify ASIC of any breaches and start a clean-up.

That’s what ASIC hopes for too. But, if no one falls on their swords – and the past few years have demonstrated how reluctant licensees are to do so – ASIC brings out the big guns of enforcement.

Naturally, they’ll start with the big AFSLs, who’ve proven to be easy to make examples of.

But here’s the rub. By the time that work is nearing completion, ASIC has a template for investigating smaller players. They know what to look for, where to find it, what questions to ask – and they have a standard methodology for doing so.

It goes like this:

  • Require the AFSL to provide a list of clients and information about the advice provided to them in the form of a spreadsheet (a s912C notice).
  • At the same time, require production of policies and procedures dealing with the area of concern (a s33 notice).
  • Having reviewed all this, ASIC then request and review a curated sample of past files (a s33 notice).
  • If their concerns are borne out, some recent files may be requisitioned to see if any improvements have occurred – hoping that, by now the firm’s compliance team will have acted on the report (another s33 notice).
  • An optional next step is a s19 examination, where ASIC brings the CEO or other senior managers in for questioning.

If ASIC finds breaches which haven’t been voluntarily reported, enforcement action will follow, as night follows day.

So reading the tea leaves to be found in ASIC’s Corporate Plan for 2017/18 to 2020/21, its Enforcement Outcomes report for Jul-Dec 2017 and the carnage emerging from the Royal Commission, here’s a snapshot of what non-bank financial planners, accountants and life advisers should be looking for in their businesses – because if you don’t ASIC will!

  • Charging fees for no advice. So far, over 27,000 customers have received a refund of fees charged for ongoing services that weren’t provided. ASIC estimates at least 150,000 more refunds will be required, demonstrating that the problem can’t be limited to the banks! This means that selling grandfathered investment trail commission books must be a thing of the past – even if the government doesn’t legislate to end grandfathering.
  • Life insurance churning and inappropriately recommending super money be used to pay for life premiums – ASIC now receives regular exception reports on high lapse rates from insurers, from which they’ve become highly adept at detecting bad practices.
  • Failing to consider whether clients’ existing products will meet their objectives before recommending replacement – the minimum standard requires financial modelling of both options and a clear case for change, all of which is clearly explained in the SoA.
  • Inappropriately recommending SMSFs – it’s not just low balances that ASIC is concerned about – client financial literacy and willingness to manage the responsibilities inherent in an SMSF are just as important.
  • Recommending services that clients don’t need or don’t value – these could include platforms or simply high ongoing service levels.
  • Recommending in-house financial products to generate extra revenue when there’s no additional benefit for the client. Vertical integration isn’t limited to banks. Advisers who operated MDAs or SMAs run all the same risks. We’ll blog more on what good vertical integration looks like shortly.

In the second half of 2017, ASIC’s enforcement actions resulted in criminal penalties, civil remedies, enforceable undertakings and administrative action, demonstrating the breadth of its powers. Indeed, ASIC has banned over 100 financial advisers in the last three years alone.

If you’re not sure whether your business is at risk, or if you receive an ASIC notice, it’s best to get on the front foot.

By Claire Wivell Plater

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