The regulator has sounded a warning to advisers outlining the major issues that it aims to crack down on. Should you be concerned?
Speaking at the AFA Conference this week, ASIC commissioner Peter Kell highlighted the areas of concern that ASIC wants advisers to focus on to keep themselves out of trouble.
Kell began by pointing out that ASIC’s program of visiting new licensees was set to continue. He noted that, while the regulator has been impressed with the level of FoFA readiness amongst new licensees, there were several who still had some way to go.
Internal audits and reviews
When it comes to preventing ASIC action in the future, Kell noted that it’s vital to follow up on any issues that are identified when your practice conducts a review or internal audit, as all too often these issues get swept under the carpet.
“When audits are conducted by the licensee, we’re often finding that issues have been identified – problems, compliance weaknesses – nothing in most cases that is going to create any problems, but need to be addressed early before they lead to bigger problems down the track,” he said.
“If you undertake a review, internal audit or compliance program within your firm, it’s very important that you follow up and implement change addressing the situation, and take appropriate remedial action.”
He noted that there have been a couple of recent cases where ASIC has had to step in and deal with licensees who have failed to follow up on issues identified in audits.
Worryingly, Kell noted that ASIC continues to see some “inappropriate switching” of life insurance policies “resulting in detriment to consumers, where we frankly can’t see why the policy’s been changed”.
“In some cases unfortunately there have been very poor outcomes for the consumer,” he added.
His calling cry on the life insurance issue, especially given that commissions on life insurance are not included in the FoFA regime, is that advisers must make sure that they address any conflicts of interest to avoid regulator scrutiny.
‘One size fits all’ business models
Another area of major concern for ASIC, said Kell, was what he referred to as the ‘aggregator’ business model, where licensees have grown rapidly by acquiring other financial advice businesses.
“This is definitely a theme on our radar, because there have been a few problems recently in relation to these sorts of business models,” he said, adding that he is particularly concerned by the operation of a ‘one size fits all’ model.
This, said Kell, can lead to inadequate or poor quality compliance resources, inadequate dispute resolution processes across the business or even fairly simple issues such as poor documentation retention.
“So we’re looking closely at those sorts of models to make sure that they work properly,” he said.
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Keith L on 01 Nov 2012 03:29 PM
One size fits all? Is it possible that Mr. Kell is starting to get concerned about Industry funds which seem to be, by and large, based on such a model? We know they work but how well they work falls back on the definition of "properly." The other assessment is from which perspective do you judge properly; the clients' or the funds'?. I suspect we should be aware of ASIC's observation relative to the shadow shopping report relative to this matter. That is, just because the client is happy doesn't mean the fund is operating properly.
Alleycat on 02 Nov 2012 06:57 AM
I have a client working in the mines that I have at his request arranged Income Protection insurance for. His wife doesn't want him working in the mines so he's 2/3 through business degree at University.
In 12-18 months time he will seek employment as a business consultant.
On review of his current Income Protection insurance due to a change in occupation, I will be able to offer him a better policy with better contract terms for less premium.
Mr Kells and Mr Brogden would like me to be penalised for "churning".
ASIC under the new government legislation would like penalised me for not following the client's best interest test.
It's clear known of you have any idea.
david m on 02 Nov 2012 12:22 PM
Gee it seems to me Peter just saying if you are going to move someone there needs to be a reason. I would think cheaper premiums, better insurance definitions etc would be fine. What's wrong with that? Beat up Industry funds all you like, as they have run a campaign of defaming all advisers with the same brush. BUT, I think we all need to take a deep breath and relax. We need to work with ASIC to tidy up our industry..