Following its review in 2011 of the 20 largest financial advisers (see here) ASIC has now released the results of its review of the next 30 largest Australian financial services (AFS) licensees that provide personal financial advice.

ASIC found that most were taking steps to mitigate key risks but ASIC highlighted risks that it thinks still pose some challenges including:

• potential and actual conflicts of interest, especially where advisers recommend products issued by related parties.
• The most reported high-impact risk to the business identified by the top 21 to 50 licensees was non-compliance with legislation, whereas the most reported high-probability risk was the provision of inappropriate advice. Staff retention was another risk that featured prominently as both a high-impact and a high-probability risk.
• All licensees conducted advice reviews to examine the appropriateness of the advice provided. One of the concerns arising from ASIC’s review was that some licensees may not have sufficient resources to properly conduct these reviews.
• There are some licensees that are not checking references for new advisers with their previous licensee.
• many licensees do not retain copies of client records separately from advisers. They rely on contractual obligations with the advisers that require the advisers to retain all relevant documents and provide them to the licensee when requested. This may give rise to difficulties for licensees in responding to future inquiries or complaints about the advice provided by advisers who have since left the licensee. This will also make it difficult for licensees to comply with their obligation to ensure that advisers comply with the best interests duty that is part of the FOFA reforms. Rather than relying solely on contractual agreements with advisers, ASIC recommends that licensees should retain access to client records in a more proactive way (e.g. by using electronic storage platforms). This will allow the licensee to respond to regulators, auditors, clients and product issuers, whenever they need to do so, in a timely and efficient manner.

ASIC recommended that licensees should ensure that a trend analysis of complaints is undertaken, and that the results of complaints are fed back to the business, so that the likelihood of similar issues arising in the future at both a licensee and adviser level is reduced.

In the coming year ASIC will visit newly licensed financial advice businesses as well as around 60 established AFS licensees to discuss implementation of the Future of Financial Advice (FOFA) reforms.