A Parliamentary Joint Committee report has called for the Australian Securities and Investments Commission to conduct random audits of 20 per cent of life insurance advisers over three years.
The recommendation, from the recent Parliamentary Joint Committee on Corporations and Financial Services – Life Insurance Industry report, suggests that ASIC then publish any instances of misconduct.
“Where misconduct is identified, appropriate entries should be recorded on the financial advisers’ register, and statistics on licensees and insurers should be published so the public can be informed,” the report states.
The paper does not specify or suggest a mechanism for publicly registering the statistics but it does recommend that, “Advisers that have been reviewed must also publish the outcome on their website in a highly visible location.”
The suggestion that advice firms should be forced to publish all review results has been met with scepticism from advisers. Matthew Kidd, chief commercial officer at wealth advisory group Omniwealth, says that if the suggestion were to take root, an appeal process would also need to be put in place.
“Our governing bodies don’t always get judgements right,” Kidd says. “Advisers would need to have an independent avenue of appeal available to them if they felt they had been incorrectly judged as the result of an audit.”
While Kidd says his overall reaction to the strategy is “affirmative”, he warns that “the application might not be so easy”.
“I think any legislation that makes things easier and clearer for the consumer is more often than not a good thing,” he continues. “So long as it doesn’t come at a great expense, or potentially harm an innocent business.”
The costs associated with such widespread audits are briefly addressed in the report, which states: “If necessary, ASIC should be provided with additional funding to allow these random audits to occur.”
Thirdview financial planning director Peter Foley says the logistics behind the suggestion may be more problematic than the PJC anticipates.
“The cost will be enormous,” Foley warns. “Will the government be bearing that or will large institutions be asked to fund it? Will they be asking self-licensed advisers to fund it?”
While expressing support for improving insurance advice standards, Foley stresses that some of the objectives stated in the report are already covered by existing regulations, and further scrutiny may lead only to needless duplication of efforts.
“Best-interests duty can already make or break an adviser,” he says. “How many times do we need to reinvent the wheel to achieve an outcome?”
He says that instead of adding another layer of regulation, authorities may better serve the industry by policing existing regulation more effectively.
“We need to get better at enforcing what’s already in place,” he says.
The PJC’s life insurance report, released on March 27, was instigated by the Senate in September 2016. The joint committee accepted individual submissions from stakeholders up until November 18 the following year.
Other recommendations include: a broadening of approved product lists; amendments and improvements to the insurance industry’s codes; and better synergy between the insurance and medical industries.
