The Australian Securities and Investments Commission (ASIC) has announced that it has accepted an enforceable undertaking (EU) offered by Financial Index Australia Pty Ltd (FIA) in relation to FIA’s financial advice business, including out-of-date policies and procedures, deficiencies in the file audit process, and insufficient information being provided to clients who were being moved into new products.

The surveillance of FIA’s policies, procedures and client advice files conducted by ASIC found:

• a number of FIA’s policies and procedures were deficient and referred to old sections of the Corporations Act 2001;
• FIA’s Adviser Incentive Scheme was likely to encourage representatives to switch clients from existing third party products to FIA’s own branded product;
• the majority of clients whose files were reviewed by ASIC were moved from their existing third party product to a more expensive FIA branded product without adequate justification or explanation as to why the move was likely to leave the client in a better position;
• where justification for the recommended switch from a third party product to a FIA branded product was provided in the client’s statement of advice, it was in the form of a generic statement that the FIA branded product would achieve higher long-term returns;
• in the majority of cases where clients were recommended to switch from their existing third party product to a FIA branded product, the SOAs provided to clients did not include the additional information required under section 947D of the Corporations Act when an adviser recommends replacing one product with another;
• for clients who were recommended to switch from their existing third party product to a FIA branded product, there was a lack of detailed enquiries into the client’s personal circumstances, financial needs and objectives;
• FIA’s file audit process was deficient.

Under the EU, FIA acknowledged that ASIC’s concerns were reasonable and has agreed to engage an independent expert to review client files and remediate clients where appropriate.

The Review and Remediation Program has to be consistent with ASIC Regulatory Guide 256 Client review and remediation conducted by advice licensees.

FIA had already implemented a number of its own initiatives to address most of the deficiencies, prior to entering into the EU.