The Australian Securities and Investments Commission (ASIC) has accepted an enforceable undertaking (EU) offered by Financial Index Australia (FIA) after surveillance by ASIC found a number of concerns in relation to FIA’s financial advice business.
FIA offered the EU after ASIC found FIA had moved clients from their existing product into a more expensive FIA branded product without satisfactory explanations or justification.
ASIC looked at a number of FIA’s policies, procedures, and client advice files as part of its surveillance of the firm and found out-of-date policies and procedures, deficiencies in the file audit process, and insufficient information being provided to clients who were being moved into new products.
Where justification was provided for the recommendation to switch to FIA products, it was in the form of a generic statement that the FIA branded product would achieve higher long-term returns.
The statements of advice (SOAs) provided to clients did not include the additional information required when an adviser recommends replacing one product with another.
ASIC also found many of FIA’s policies and procedures referred to old sections of the Corporations Act 2001, and the FIA’s Adviser Incentive Scheme was likely to encourage representatives to switch clients from existing third-party products to FIA’s own branded product.
Under the EU, the FIA acknowledged ASIC’s concerns were valid and has agreed to:
- Engage an independent expert to review client files; and
- Remediate clients where appropriate.
ASIC deputy chair, Peter Kell, expressed concern FIA did not have appropriate processes and monitoring in place and was not managing conflicts of interests in a satisfactory manner.
“ASIC will intervene where it finds the quality of advice provided by advisers, and the supervision of those advisers by the licensee to be lacking,” Kell said.
In a statement, an FIA spokesperson said the concerns outlined in the EU were limited to a small portion of its client base and were not due to any client complaints.
"At no stage have there been any concerns about the security of client funds, or the way they have been invested or supervised. ASIC’s concerns predominately relate to the fullness of the advice documentation process," the spokesperson said.
"Clients accepted full disclosure on fees and, as is always the case, our recommendations were supported by thorough research provided by external leading industry professionals with the aim of delivering quality outcomes for our clients; they are not dictated by price."
FIA also said the funds' performance had generally been consistently above benchmark over the entire period the recommendations were made.
"It is unfortunate that ASIC's notice period referred to in the EU did not take into account updated versions of FIA's policies and procedures," the spokesperson said.
FIA had already implemented many of its own initiatives to address most, if not all, deficiencies prior to entering into the EU and ASIC has acknowledged this in the EU.
"Our clients can be assured that their interests are FIA’s highest priority and if they have not already been contacted by us, then they are not impacted by the EU," the statement said.