ASIC has released a report Review of financial advice industry practice based on the information it received in 2010 from the top 20 financial services licensees that provide financial product advice to retail clients on their practices. Together, these top 20 licensees covered just over 13,000 individual advisers.
The Report makes the following recommendations:
- 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.
- Monitoring and supervision of advisers – licensees must ensure their advisers comply with their stated procedures. Licensees must check references of new advisers to exclude ‘bad apples’. Licensees must report breaches and demonstrate remediation plans are in place. Licensees should retain access to client records at all times.
- 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.
ASIC will approach the 30 next largest AFS licensees that provide financial product advice to retail clients with a reduced and more targeted questionnaire, which takes intio account the results of the first questionnaire. It is expected this second phase review will commence by the end of 2011. ASIC will not use its information-gathering powers to seek this information, unless requested to do so by the licensee, as feedback from the first questionnaire indicated that most licensees are willing to participate voluntarily.
