Significant industry restructuring has led the Australian Securities and Investments Commission (ASIC) to issue a warning to licensees about their recruitment processes for advisers.
Following the closure of a number of advice licensees due to compliance failures, including AAA Financial Intelligence and Morrison Carr Financial Services, ASIC said it was prepared to take further action if it found groups were recruiting ‘orphaned’ advisers without sufficient process.
ASIC said it expected financial services businesses to conduct background checks on migrating representatives, and to ensure they were competent and adequately trained. The regulator reminded licensees that it has the power to restrict or remove firms or individuals who might cause or contribute to investor losses.
“Generally, licensees have good compliance and governance standards and ensure representatives go through rigorous checking before taking them on,” said ASIC Deputy Chairman, Peter Kell. “However, we want to make sure that all licensees are fully aware of the need to do this. The reputation of a firm can painstakingly be built over a number of years but seriously damaged overnight through poor representatives.
“In many cases, representatives of licensees against which ASIC has taken action will be adequately trained and competent, and comply with the financial services law. However, where representatives have come from an environment in which there was a culture of poor compliance or poor quality advice, appointing licensees need to take extra care to satisfy themselves that representatives are properly trained and monitored to address early any issues that might arise.”
Monitoring and supervision are much more than audits and compliance checks
Mr Kell also recommended that licensees put in place adequate supervisory arrangements to be able to identify and address competence deficiencies quickly, and to have adequate resources to be able to monitor new representatives.
“Monitoring and supervision are much more than audits and compliance checks. They are about proactively ensuring that advice is appropriate and clients are treated fairly,” Mr Kell said.
“ASIC is continuing to closely scrutinise licensees’ obligations to demonstrate adequate monitoring and supervision and will not hesitate to take action where we find those practices deficient.”
