The Australian Securities and Investments Commission has provided clarity around its surveillance of life-risk advisers, saying it has over recent years uncovered multiple incidences of egregious behaviour by advisers engaged in churning insurance policies, and its initial focus on only 10 advisers following receipt of lapse data does not reflect the true extent of the issues.
ASIC senior executive leader of financial advisers, Joanna Bird, told the 2017 FPA Professionals Congress in Hobart on Friday that the lapse rate of insurance business is “just one piece of data that we put into a picture so we can target our surveillance, and then we actually look at the advice”.
Bird said ASIC recognises that the bigger picture around policy replacement activity is complicated.
“If you could see the sorts of cases we get and where we do actually take enforcement action, you’d realise that this anxiety about lapse rates and what ASIC is doing with that data is really probably misplaced,” she said. “We recently banned an adviser; some of his [advice] involved people with incomes of $200,000 paying $50,000 a year in premiums, and these policies were churned every two years. We had another adviser whose business model was to churn everybody at 13 months and, in fact, he made so much money from that process he worked only six months of the year.
“We’re talking about very egregious conduct that we’re looking for. We absolutely understand the reasons a policy will lapse are quite complicated and in many cases policy replacement advice is in the client’s best interests.”
Bird said the mere fact a policy lapses does not mean the advice to take out the policy was faulty in the first place. She said ASIC understands how premium rate increases by insurers can feed into consumer decisions to allow policies to lapse.
The regulator has received a first round of lapse data from insurers and will soon receive the second.
“We’ve used that data plus a whole lot of [other] data we have, to get a list of advisers who might be at higher risk of providing poor advice,” she said.
The first round of data led to surveillance of 10 advisers.
“There’s been significant misunderstanding of what that means,” Bird said. “Before the project even started, we said we would look at 10 advisers, because that was all the resources we had as part of that project. That…is not a measure of misconduct in the industry, it’s actually, if anything, a measure of our resources. We’ve done the surveillance on those 10 advisers and where appropriate we’re going to take regulatory enforcement action against those advisers or the licensee.”
Deadline reminder for tax advisers
Meanwhile, the Tax Practitioners Board (TPB) has urged financial planners whose registration renewals are due by the end of December to start the process now by providing updated information, to avoid becoming unregistered and unable to practice in the new year.
TPB director Julie Berry told the congress that 9500 tax (financial) advisers’ registrations are due by January 1, 2018.
“Don’t be fooled by the first of January; this means your registration has to be in by December 31,” Berry said. “Just to cheer you up, it’s four weeks to Christmas Eve…and I think it’s fair to say most of us will be closed on or around that week, so you really need to be looking at getting this done now. As long as you submit your renewal in time, you will remain registered and be able to continue to practise and give tax (financial) advice. If your renewal is not submitted in time, you are no longer registered and you can’t provide that advice anymore.”
Berry said being unregistered means an advice business cannot charge for advice provided on the tax consequences of financial advice.
“Can anyone think of any advice you’ve provided that didn’t have tax consequences?” she said. “Maybe general insurance? Maybe a mortgage for your home? But essentially, pretty much any advice we provide…is going to involve tax consequences. So if you give that advice for a fee, you have to be registered with the TPB, otherwise you’re operating illegally.”
She said that even though the TPB goes to considerable lengths to remind advisers that renewals are falling due, up to 20 percent of the email addresses it has on file are out of date or just wrong. That is often because an adviser’s initial registration was lodged by the licensee, rather than the individual adviser, and the email contact provided was for the licensee.
“A lot of people don’t even know they’re registered, “Berry said.
She said advisers can log onto the TPB website to check the status of their registration and provide updated details.
This article was edited on 27/11/17 to reflect the fact that ASIC’s initial focus on only 10 advisers reflects the resources it has available to conduct detailed surveillance, and does not mean it has uncovered “relatively few” incidences of egregious behaviour by advisers, as originally reported.
