May 29, 2018
ASIC is likely to target smaller financial advice groups and individual advisers now that it had a better understanding of the key areas of concerns in the advice process, a financial services legal firm has claimed.
In a blog post, The Fold Legal Managing Director, Claire Wivell Plater said while ASIC’s recent enforcement action has focused on institutionally owned advice networks “…it would be foolhardy to assume that non-bank advice firms are not a focus”.
Wivell Plater said ASIC’s pattern of operation is to investigate potential regulatory issues within larger financial advice providers as misconduct may be more widespread and evidence easier to find, allowing ASIC to gauge the nature and extent of misconduct and where it is likely to take place.
These investigations usually lead to a report and enforcement action against larger advice providers, Wivell Plater said, adding that in following this process ASIC has created a template for investigating smaller advice providers.
“They know what to look for, where to find it, what questions to ask – and they have a standard methodology for doing so,” Wivell Plater said, adding “…if ASIC finds breaches which haven’t been voluntarily reported, enforcement action will follow, as night follows day”.
“…it would be foolhardy to assume that non-bank advice firms are not a focus”
Based on the regulator’s Corporate Plan (see: ASIC Outlines Ongoing Focus on Life Insurance) and enforcement outcomes from the second half of 2017, Wivell Plater said non-bank planners and life insurance advisers should expect ASIC to start examining life insurance churning, the use of super funds to pay life insurance premiums and charging of fees for no advice.
Wivell Plater said ASIC had become ‘highly adept’ at detecting bad practices around life insurance as it now received regular reports on high lapse rates from insurers.
At the same time she claimed ASIC was looking at 150,000 more refunds related to fees for no advice, beyond the 27,000 customers of major banks who had already received refunds, which meant the problem was not confined to institutionally aligned advice.
“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,” she said.
Additional issues that are also likely to be examined according to Wivell Plater include failing to consider whether a clients’ existing products will meet their objectives before recommending replacement, the use of inhouse products that generate extra revenue with a client benefit, the inclusion of services that don’t add value and inappropriately recommending SMSFs.