Speaking at the Association of Financial Advisers conference at the Gold Coast yesterday, ASIC deputy chair Peter Kell laid out his concerns about retail life risk advice practices.
In making the case for the surveillance project, announced at the Financial Services Council conference in August, Mr Kell singled out AAAFI's “appalling record in breaching a majority of its licensing conditions” – particularly in relation to risk advice.
As much as 80 per cent of the life risk advice produced by former AAAFI advisers was deemed by ASIC to be “inadequate”, said Mr Kell.
AAAFI “failed to appropriately consider products suitable to the client’s individual objectives” and produced “poor and inadequate” fact-finds, he said.
The former dealer group, which has since had its licence cancelled by ASIC, produced “inappropriate and conflicted [risk] advice that caused real, meaningful harm”, according to Mr Kell.
In July, AAAFI’s liquidator, Bradley Tonks of Lawler Partners, told InvestorDaily an AAAFI director’s report that blamed “rogue advisers” within AAAFI subsidiary AAA Shares for recommending products not on the approved product list and resulting in “significant claims action against the company” was not the full story.
Mr Tonks said there were other key factors, including “poor strategic management of the business and poor economic conditions”.
The regulator is currently undertaking a surveillance project into retail life risk advice in order to “better understand industry practices” and to “assess whether policies are being sold appropriately and whether clients are receiving advice that's in their best interests,” said Mr Kell.
“We have served notices on a range of insurers whose products are being distributed through personal advice to gather information around how the industry is working and the sorts of policies being provided,” he said.
The problems at AAAFI could have been “avoided very easily” if its advisers had acted in the best interests of their clients, said Mr Kell.
Mr Kell also addressed the “hype” surrounding the best interests test contained in the Future of Financial Advice reforms, saying that the new requirement does not mean advice necessarily has to be “gold-plated”.
“Clients don’t expect you – and nor does ASIC – to give gold-plated advice or to recommend gold-plated products and policies to your clients,” said Mr Kell.
