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10% of advice of significant concern to ASIC

Ten per cent of advice files sampled by the Australian Securities and Investments Commission (ASIC) as part of its focus on the four big banks and AMP Limited gave rise to significant concerns about the impact of non-compliant advice on the customer’s financial situation.

The ASIC report resulting from the scrutiny of AM, ANZ, the Commonwealth Bank, National Australia Bank and Westpac pulls no punches with respect to the regulator’s ongoing concerns about the quality of advice, particularly with respect to superannuation switching.

Explaining its approach, ASIC said it had focused on both the make-up of approved product lists (APLs) within the major institutions and the quality of advice.

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Discussing the 10 per cent of advice files about which it had significant concerns, ASIC said this was because clients had often been left worse off.

“We were significantly concerned because, for these customers, switching to the new superannuation platform resulted in inferior insurance arrangements and/or a significant increase in ongoing product fees—without additional benefits being identified that were consistent with the customer’s relevant circumstances,” the report said.

The report also noted that ASIC had found that in 75 per cent of the customer files it reviewed, including the 10 per cent about which it was greatly concerned, “the adviser had not demonstrated compliance with the best interests duty and related obligations”.

However, the regulator acknowledged that outside of the 10 per cent of files which were of significant concern, the remaining outcomes would not have necessarily left clients worse off.

ASIC said there were two areas, in particular, that led to a customer file being rated as not having demonstrated compliance with the best interests duty and related obligations—"that is, where the adviser had not demonstrated that they had:

(a) sufficiently researched and considered the customer’s existing financial

products; and/or

(b) based all judgements on the customer’s relevant circumstances.




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So here we have it. ASIC discovers that the 4 major banks Macquaire and AMP are essentially product sellers and not advice providers acting in the interest of consumers. That 10% of files inspected this suggests so. What is the real number ? Not sure. But while ASIC are doing this, what about INDUSTRY FUNDS and the advice they dispense. This is essentially 100% of the advice. And as for DIRECT sellers of insurers, what about them ? If ASIC are genuine in their intent, they go after all. All providers including direct sellers of insurance and industry funds. To do otherwise smacks of politicising something which is of significant concern. Get real ASIC...do a proper job and across the board at that.

Imagine if ASIC ran Transport. They would report that 75% of drivers are stupid because they drive to work rather than taking the bus. If your only measure is cost, then most of the world will appear stupid. Who would have thought that public servants can't comprehend the non financial/operational issues that must also shape advice recommendations?
ASIC will be damned (again) for the poorly focused and lazy approach they have taken to the real issue of vertical integration and have once again trashed their opportunity to be a catalyst for important change to get rid the truly shitty aligned product - retail and industry funds alike.
PS; Industry funds are also Vertically Integrated - why no investigation there??? Smacks of bias.

I am just confused by this news report. It states the bad advice was around "not researching the client position", but says the faults were higher fees. Surely these are different things? Was the concern about fees or was the concern about understanding the client position. Can someone please clarify this?

If 10.0% were a problem, does that mean that the other 90.0% were OK.
Rather than punish 100.0% of the advisers, why not point out the problem for the 10.0% that had significant concerns and deal with those.
That is what was wrong with ASIC's approach to dealing with a few recalcitrant advisers under the "churning" claims, and decided to support bludgeoning every advisers for the sins of a handful.

Dear Aleycat, According to the ASIC report 70% of advice was not good enough, 10% was considered illegal. Very little information on what "sufficent research of existing product " was required or how much time was spent per SOA doing research by ASIC. For example if ASIC spent 20minutes on average to discover the research was wrong, then clearly there is an issue. If ASIC just could not see a file note so concluded the reseach was wrong then perhaps the conclusion was wrong, If ASIC spent 20 hours per SOA to check the research then clearly ASIC's expectations for acceptable research make advice too expensive for people to afford. Unfortunately the report does not summarise or give details on what was happening. Even the detailed sections are really just summarises of the the investigation. No assumptions, or background was provided, nor was the procedure fully disclosed. Basically it would fail any academic or rigorous examination without more information being provided.

@ RobinBris,
I don't have time to read ASIC reports because in a lot of cases they are based on supposition that any failure by advisers that do not take into account the "Best Interest" test or fail the Safe Harbour Conditions (Corporations Act s961B), it's rampant within the industry.
Just remember, for the most part, it's the basis for the LIF legislation, from the random sample they took of a few recalcitrant advisers, where there were only 50 that were found to fit that scenario.
As you expect ASIC have stated 70.0% of the advice was not good enough.
I would accept that number with suspicion.
ASIC has no idea what goes on behind the advice process provided by an adviser.
And you are correct, file notes or other options considered including costs, new benefits included, and benefits lost as a result of any change, and what's in it for the adviser, should always be in a clients file
A client's "best Interest" and having a reasonable basis for advice is fairly simple
It cannot be that hard to validate a change of insurance based upon the "Best Interest" test.
I never ever consider replacing a clients insurance until they have a complete and thorough medical check and a PMAR is supplied.
There is case law where either clients have failed to disclose material fact to an adviser or have develop a health condition that they are not aware that puts everyone one a risk in the process when replacing insurances.
Why would you accept a report that does not summarise or give details of what was happening.
The conclusion you need to put a time frame on how much research was done to provide advice shows how unrealistic, the ASIC process is.

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