A leading compliance expert says even small financial planning licensees should pay close attention to the Australian Securities and Investments Commission’s report into how large institutions oversee their advice networks.
Stewart Chandler, principal of AFSL Compliance, says ASIC Report 515, Financial Advice: Review of how large institutions oversee their advisers is “relevant and important for small licensees”.
Chandler recommends that, as a minimum, all Responsible Managers read the report’s executive summary, along with appendices 2 and 3. He says four key actions arise for small licensees from ASICs examination of the big networks (see box).
Chandler acknowledges that small licensees have different business models from the institutions the ASIC report covers.
“There is a much closer working relationship with each adviser [at small licensees],” he says. “They don’t have the conflicts of interest that come from vertical integration. They predominantly generate their revenue on fees for advice and not products and there is arguably a greater level of personal accountability to their clients [but even so, the report] does provide relevant and important guidance for small licensees.”
Reference checks are critical
Chandler says the ASIC report highlights the importance of completing a reference check back to the previous licensee for all new adviser appointments.
“The reference check should be made with an appropriately qualified and authorised individual, such as the head of compliance for a larger licensee or an executive director for a smaller licensee,” he says. “It cannot be a colleague of the adviser or a past employee of the licensee that provides the reference. ASIC also expects the new licensee to request and consider the latest audit report for the adviser.
“ASIC notes that some licensees will provide information only where there is clear consent from the adviser. ASIC recommends using the consent, direction and release forms from the Standards Australia reference-checking handbook (HB 322-2007).
The report also provides a checklist for new adviser appointments in Appendix 2.
File and SoA reviews
Chandler says that while formal client file and SoA reviews are not typically the main monitoring and supervision tools for small licensees, they should still be established where the licensee’s Responsible Manager is not preparing or reviewing all advice documents before they are issued to clients.
“It is critical that the reviews focus on the quality of advice being provided to clients and, as such, this part of the review should always be completed by the most senior advisers within a licensee,” he says. “The point most relevant to small licensees is that ASIC has provided guidance for assessing compliance with the new best-interests obligations under FoFA.”
Chandler says small licensees should take advantage of this guidance by:
- Incorporating it into their checklist used for client file and SoA reviews.
- Reviewing their existing advice processes and SoA templates.
- using it to confirm their understanding of the best-interests obligations and to provide adviser training.
Managing issues as they arise
Chandler says ASIC raised concerns in its report over institutions’ adviser consequence management and customer remediation.
In this respect, small licensees may be better placed than their institutional counterparts, he says.
“As well as having fewer issues to manage, I find that small licensees have more effective tools at their disposal for adviser consequences management,” he says. “As an example, the owners and directors of a small licensee are often in the same office as the adviser and can work closely with the adviser to address concerns. Institutions rarely have this option. [Small licensees] can also more effectively monitor and supervise future advice.
“Although small licensees may be better positioned to manage issues, the ASIC report does reinforce the need for all licensees to document the adviser consequence management and customer remediation that they undertake.”
Four key actions for small licensees
|
