Financial planning groups and other financial services businesses that have been growing rapidly can expect increased scrutiny by the Australian Securities and Investments Commission.
That appears to be the bottom line of a notification issued by ASIC on what will be on its radar this year. The regulator has warned that it is looking at the question of aggregator licensees, particularly those it deems to be running ‘lite touch’ business strategies.
“In recent year, a number of licensees have sought to rapidly grow their business by acquiring other financial advice businesses,” ASIC said. “Concerns have been raised that some of these aggregators are not properly resourced and funded, and as a consequence might not be meeting their licence obligations.”
ASIC said that through the year, it would be looking closely at licensees believed to be running such business models and would be paying visits to scrutinise how well such businesses were complying with the licence conditions – as well as the quality of the advice being provided to clients.
The regulator said the hallmarks of ‘lite touch’ business models were that the licensee operated a ‘one-size-fits-all’ approach, had inadequate or poor quality compliance resources and had poorly resourced and inadequate dispute resolution processes.
ASIC said it would also be closely monitoring the quality of advice provided to consumers this year, and would be both reviewing client advice files itself and retaining external auditors (which would in turn be subject to random spot checks).
The regulator said it would also be examining complex products such as those providing capital guarantees.
ASIC said it was vital that advisers understood their products and carefully considered whether they were appropriate to clients’ circumstances and investment goals.
“In coming months, ASIC will be conducting a ‘health check’ on structured capital protected and guaranteed products, particularly where these products require the client to borrow up to 100 per cent of the investment amount via a non-recourse loan,” it said.
ASIC will also be examining the increasing use of Managed Discretionary Accounts – particularly with respect to high risk strategies involving gearing.
