ASIC has recently completed two significant engagement programs with AFS licensees who advise retail clients. These programs are part of ASIC’s gatekeeper monitoring and ensuring these gatekeepers are adequately informed and resourced for the functions they undertake.
Report 362 Review of financial advice industry practice: Phase 2 (REP 362), released today, summarises the findings of our recent review of the business and risk practices of the top 21 to 50 Australian financial services (AFS) licensees that provide personal financial advice.
We have also recently concluded visits to 24 financial advice licensees who have only recently obtained their AFS licence. These visits furthered the relationship between ASIC and the new AFS licensees, and enabled us to help them to understand their obligations.
We will be continuing our financial adviser engagement program in the coming year by conducting two further projects:
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visits to other newly licensed financial advice businesse, and
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visits to around 60 established AFS licensees to discuss implementation of the Future of Financial Advice (FOFA) reforms.
ASIC will use the information gathered to target future financial advice surveillance and to inform our policy work.
‘Engagement with industry and stakeholders is one of our regulatory tools. These financial advice stakeholder engagement programs ensure we understand the practices of the financial advice industry. They enable us to shape our future regulatory action in a way that responds to the needs of industry and the risks for consumers,’ ASIC Deputy Chairman Peter Kell said.
Review of financial advice industry practices: Phase 2
REP 362 summarises the findings from our review of the top 21 to 50 advice licensees. This review is part of ASIC’s proactive risk-based approach to surveillance.
The report highlights that:
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licensees are focused on risk management and compliance, though different licensees identified different key risks
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licensees employ different methods to manage risks, and some deploy significantly more resources than others to risk management
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proactive licensee monitoring should be instrumental in detecting incidents and breaches, and
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advisers should not rely on risk profiling tools without also considering if the outcomes are appropriate for their clients’ circumstances.
ASIC is providing individual feedback to the participating licensees on their business and compliance practices.
REP 362 completes ASIC’s review of the top 50 licensees. Our findings on the top 20 licensees are discussed in Report 251 Review of financial advice industry practice (REP 251) (refer: 11-202MR).
New licensee visits
ASIC has recently visited 24 newly licensed financial advice businesses, representing a quarter of the advice licensees that obtained their AFS licence between July 2011 and June 2012. These visits aimed to help the new licensees better comply with AFS licence obligations.
ASIC asked licensees questions about their business model, advice processes and approach to risk and compliance. Key findings from the project include:
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licensees need to carefully consider whether their advisers are adequately trained for the advice they are authorised to give. For example, while 83% of the licensees offered self managed super fund (SMSF) services, only 48% of those licensees required their advisers to complete additional training on SMSFs
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use of external compliance service providers is very common among new advice licensees. 86% of the licensees visited used a compliance service provider on an ongoing basis. Licensees need to be mindful that they retain responsibility for achieving compliance and should consider their appointment of external compliance service providers very carefully, and
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67% of the new licensees, even those with a small number of advisers and clients, had a paraplanning function. This suggests licensees recognised the value in allowing paraplanners to perform more routine or administrative functions, freeing up advisers' time to focus on services that add value to their clients.
Given the positive feedback ASIC received from the licensees visited, a similar program will be undertaken in the 2013-14 financial year.
Upcoming proactive FOFA visits
ASIC will visit a number licensees across Australia during the 2013-14 financial year to discuss FOFA implementation and compliance. This is part of our continuing stakeholder engagement and facilitative approach to FOFA.
These visits aim to help us improve our knowledge of how financial advice licensees have actually gone about implementing the FOFA reforms, and any ongoing challenges they face.
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