The chairman of AFS Group has questioned the findings of ASIC's surveillance of the dealer group.
Barry Stephen used his commentary in the dealer group's 2011 annual report to raise concerns over the outcome of the corporate regulator's examination, stating a degree of uncertainty now existed that might impact on the group in the future.
"AFS has been reviewed as part of ASIC's general program of surveillance of licence holders. The company disagrees with some of ASIC's findings and is currently collaborating with ASIC in an endeavour to find a solution which is acceptable to both parties," Stephen said.
"The company has already rectified some of the weaknesses identified by ASIC. However, there is a degree of uncertainty regarding the outcome, which may have implications for claims against the company for 'poor' advice."
He said AFS had made "adequate provision" for costs associated with the outcome of ASIC's surveillance.
Yesterday, ASIC imposed additional licence conditions on AFS following a six-month surveillance.
Outside of the surveillance, the past 12 months of lacklustre markets, continuing fallout from the global financial crisis and uncertainty regarding Australia's reform environment had been challenging for the group.
"In our case, these unsettling events were compounded by our continuing negotiations with prospective purchasers, which resulted in a massive diversion of resources which would otherwise have been focused on growing the business," Stephen said.
"The fact that we were 'for sale' made it almost impossible to recruit new advisers."
For the financial year ending 30 June 2011, AFS's bottom line result was a reduction in consolidated after-tax profit of 40 per cent from $2.8 million to $1.7 million.
Total expenses for the period were $1.43 million, which included $370,000 in provision for claims, bad debt of $580,000 and write downs for the Salisbury Group of $200,000.
AFS Group managing director Peter Daly said the major items that impacted on the performance of the Salisbury Group were an increase in insurance costs of $140,000 and increased legal costs of $120,000.
"The increase in insurance costs was almost totally driven by an increase in PI (professional indemnity) premium as a result of poor claims experience, principally in respect of one adviser in the period preceding the 2010 renewal," Daly said.
"Legal expenses dramatically increased as a consequence of defending claims in respect of the same adviser. Salisbury has commenced legal process to seek recovery of the debt."
Meanwhile, he said AFS remained committed to its decision not to proceed to sale, but to begin a process that would ensure AFS practices were well positioned for the future.
"The objective will be to transition business to selected products and platforms, commencing grandfathering of existing products/platforms, but funnelling as much business as possible into selected private labels, products and underwriters," he said.
By 1 January 2013, the proposed framework could involve three private labels, a self-managed superannuation solution and a managed discretionary account facility, the report said.
Daly said AFS's remaining products on its approved product lists would be rationalised, however, there was no plan to change the number of risk underwriters.
"The influx of consumer complaints and acquisition discussions has taught us that we need to adopt a more rigid and prescriptive compliance regime," he said.
"Working with ASIC and independent consultants, AFS has embarked upon an organisational-wide review with numerous recommendations implemented regarding our compliance structure, IDR (internal dispute resolution) process, practice audit, training and management of conflicts of interest."
