The corporate regulator is holding follow-up discussions with a number of Australian financial services licence holders whose financial planners were ranked in the ‘poor’ category of its latest shadow shopper survey.
ASIC commissioner Peter Kell revealed representatives of the regulator were approaching the licensees of the 25 planners, or 39 per cent of those surveyed, who were deemed to have provided ‘poor’ advice to clients.
“We are talking with some licensees, especially where planners were in the poor category,” Kell told yesterday’s joint Financial Services Council and Association of Financial Advisers breakfast.
“We have made an offer that we are happy to speak to anyone who wants to talk to us about it, but we generally don’t go into detail, for a variety of privacy reasons, as much around the consumers rather than anything else.
“It’s the detail about who the actual planner was or who the actual client was. But yes, we are having some follow-up conversations with some licensees, especially where we have identified some concerns.”
He said the poor-quality advice was generally deficient in a number of respects that could result in “detrimental” outcomes for the client.
In particular, he said the outcome for clients could result in inappropriate risk exposure, unnecessary loss of benefits or income, switches into products with higher fees but no offsetting benefit, or failure to achieve objectives.
“The majority [or 37 examples] were adequate, which means that the advice was appropriate for the client but fell short of the standard of good advice in one or many respects,” he said.
“Some adequate advice was close to good quality, some was near to poor quality. These cases were a missed opportunity to provide significant value for the client.”
The survey into Australia’s retirement advice sector, released in March, also revealed cases where the advice was not adequately tailored to the client, he said.
“At its worst we saw advice where the previous client’s details were still in the SOA (statement of advice) provided to the new client,” he said.
Since the start of 2012, ASIC has taken close to 20 actions, including bans and the acceptance of enforceable undertakings, from within Australia’s financial services sector.
As well as concerns over poor advice, the survey also found limited or scaled advice was still not well understood.
“There were too many examples in the survey where limitations of the advice were not made clear and/or essential topics were excluded from the scope of advice,” Kell said.
“There are some lessons from this survey that ASIC will incorporate into our FOFA (Future of Financial Advice) guidance on scaled advice.”
As reported in InvestorDaily last month, the regulator will release regulatory guidance on key aspects of FOFA, including scaled advice, later this year.
Kell outlines FOFA code expectations
As well as addressing the issues of FOFA in the context of its shadow shopper survey, Kell used his speech to detail ASIC’s next steps in terms of its advice reform code.
“We plan to consult publicly on our approach to code approval and relief powers once the [FOFA] legislation is finalised,” he said.
ASIC expects the FOFA code to address specific industry issues and consumer problems not covered by legislation, and elaborate on legislation to deliver additional benefits to consumers.
It is also expected to clarify what needs to be done from the perspective of a particular industry or practice or product to comply with the legislation.
The code was also expected to contain binding rules and be enforceable against code subscribers through contractual arrangements, Kell said.
The code must also be developed and reviewed in a “transparent manner”, involving consultation with relevant stakeholders and consumer representatives, he said.
It must also have effective administration and compliance mechanisms, he said.
“The code approval process will be careful and rigorous. Any code will take a considerable amount of time to develop and it will take months (at least) rather than weeks for us to assess a code,” he said.
“ASIC does not want to see codes put forward that have not benefited from appropriate input by interested stakeholders.”
He said at this stage, the regulator expected its consultation paper would include details on appropriate content of a code submitted for approval, including methods to preclude the need for opt-in.
It will also include administration, governance, monitoring and enforceable codes as well as details surrounding ASIC’s approval and relief process.
However, Kell did note that as the FOFA legislation was yet to be passed, the regulator was unable to approve any codes linked to the advice reform.
“We expect that codes will contain provisions that require members to have active obligations towards their clients that will generally achieve the same outcome as the opt-in requirement intends to achieve,” he said.
“ASIC intends to consult further on what those responsibilities and requirements on code members will be, and our expectations as to what actions will ‘obviate the need’ for opt in.”
