ASIC is expected to grill a further 30 dealer groups to examine the strength of their financial advice compliance systems and practices.
“We expect licensees to have strong controls and procedures in their businesses that address all potential risks, both at the licensee level and the consumer level,” ASIC chairman Greg Medcraft said.
Yesterday, the corporate regulator said it completed a review of 20 of the largest Australian financial services licensees (AFSL) on their practices, based on information it received in 2010 from the dealer groups.
ASIC found the largest dealer groups needed to improve on areas including managing conflicts of interest, training of advisers, monitoring and supervision of planners, product and strategic advice and complaints handling and compensation.
“Many licensees are not checking references for new advisers with their previous licensee. This practice allows bad apples to continue in the industry,” ASIC’s report said.
“Many licensees do not retain copies of client records separately from advisers. This may lead to difficulties for licensees responding to future enquiries or complaints about advice provided.”
ASIC said licensees should ensure they effectively managed, and where possible, avoided conflicts of interest in their business models.
“Disclosure alone will not always satisfy a licensee’s obligations and this needs constant oversight,” the report said.
“Conflicts of interest within the approved products need to be actively managed. If advisers are recommending high levels of a few products, then the reasons need to be explored and justified.”
Licensees should continue to give training a high priority, as this lessened the risk of poor advice being provided, the report said.
Dealer groups were also expected to invest significant time, funding and resources, including senior management support, into ensuring they handled complaints well, it said.
ASIC said its recommendations should be followed in conjunction with any regulations enacted as part of the Future of Financial Advice reforms.
“We will shortly approach the 30 next largest AFSLs that provide financial product advice to retail clients with a reduced and more targeted questionnaire, which has been informed by the results of the first questionnaire,” Medcraft said.
“It is expected this second phase review will commence by the end of 2011.”
