The Australian Securities and Investment Commission (ASIC) has issued a warning to dealer groups that they need to monitor their advisers more closely to help weed out ‘bad apples’.
The recommendation is part of ASIC’s Review of Financial Advice Industry Practice Report, which surveyed the top 20 Australian Financial Services Licensee (AFSL) holders. ASIC says the motivation for approaching the licensees was to closely examine financial advice compliance systems and to inform its analysis of the key risks facing gatekeepers in the financial advice industry.
AFSL holders need to apply stronger controls to the monitoring and supervision of advisers
According to the report, AFSL holders need to apply stronger controls to the monitoring and supervision of advisers. This includes checking the references of new advisers to ‘exclude bad apples’, and demonstrating remediation plans are in place when a breach occurs. The report also recommends that licensees retain access to client records at all times.
Speaking about the report, 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.”
Other key issues facing licensees, as identified by the report, include:
- 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
- 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.
The information for the report was gathered at the end of 2009 via a questionnaire, sent to the 20 licensees with the greatest number of advisers operating under their license.
ASIC will now turn its attention on the next 30 largest AFSLs, with the second phase of the review expected to commence by the end of 2011.
