In announcing the key areas it will be investigating in 2011, ASIC has issued a warning to the advice industry that it will not tolerate poor quality of advice .
“Where consumers have received, or are at risk of receiving, inappropriate advice we will step in and take tough regulatory action,” said ASIC Commissioner Greg Medcraft.
“Poor quality advice cannot be tolerated. It is not just the individual client that suffers loss, but the reputation of the industry as a whole is damaged as consumers lose confidence in the advice process.”
The financial advice themes that ASIC will focus on are:
- Aggregator licensees
- Quality of advice
- Advice relating to complex products such as capital guaranteed products
- The use of managed discretionary accounts (MDAs).
The themes and the specific areas ASIC will investigate are covered in an update issued by ASIC on 11 March.
The update draws particular attention to the risk of poor advice resulting from “lite touch” business models, especially those that have resulted from an aggregation of advice businesses.
Aggregator licensees… will be subject to… a “kick the tyres” test
Aggregator licensees, or those who grow their business through the acquisition of other advice businesses, will be subject to what ASIC refers to as a “kick the tyres” test to scrutinise how well they are complying with their licence conditions, and the quality of advice being provided to clients.
Under ASIC’s licensing regime all licensees are expected to properly manage and supervise representatives and employees, ensure conflicts of interest are appropriately managed or avoided, ensure staff are competent and adequately trained, and ensure client complaints are dealt with promptly and adequately.
ASIC says that concerns have been raised that some aggregator licensees are operating “lite touch” models because they are not properly resourced and funded.
According to ASIC, “lite touch” business models can include licensees who:
- Operate a one size fits all business model
- Have inadequate or poor quality compliance resources
- Have a poorly resourced and inadequate dispute resolution process
- Fail to do simple things like retain copies of client files
“By drawing attention to these issues we hope to help licensees avoid pitfalls and ensure quality financial advice is being provided to consumers,” Mr Medcraft said.
