Licensees seen as ‘first line of defence’ against product failure
ASIC believes advice licensees are the “first line of defence” when it comes to future product failures and is urging them to monitor their approved product lists (APLs).
In a speech to the Financial Services Council (FSC) conference in Sydney, ASIC chair Joe Longo detailed the corporate regulator’s focus on enforcement of advice licensees.
ASIC has doubled the number of financial advice-related investigations commenced since last year and described them as “the most complex and resource-intensive investigations” it has conducted.
In particular, scrutinising advice licensees that are using lead generation services is a key focus to determine how industry practices are evolving.
This focus on lead generation services follows the failure of managed investment scheme First Guardian, which used lead generators to refer individuals to personal financial advice providers who advised them to roll their superannuation assets into a retail choice superannuation fund, and then invest into First Guardian.
Longo said: “There’s a reason why we are focusing on the role of licensees in our enforcement work – you are the first line of defence. You must have strong quality controls for your approved product lists.
“If you are a licensee who has engaged the service of a sales referral source, you should have in place adequate monitoring and supervision arrangements to detect concerning conduct and to make sure your advisers are acting in the best interests of their clients.
“We need to be asking what payments are being made to lead generators, financial advisers, and their respective licensees along the way. What links are there between the property developers, responsible entities, and financial advisers? And are our existing conflicted remuneration and conflicts of interest rules robust enough to manage this tangled web?”
He likened the role of licensees to that of a supermarket where staff are expected to check that products are fit for purpose and suitable for their customers.
“You’re not responsible for overseeing the production of everything you sell, or the day-to-day management of the companies that make them – but you are expected to check that the product is fit for purpose, because you have chosen to put them on your shelves.”
Earlier this week, Clime Investment Management said it is reviewing the selection process for its APLs as managing director Michael Baragwanath is concerned about the potential for product failures affecting its clients.
“The approved product list is being audited, and only products that comply with our reporting framework will be deemed suitable for investment. Considering recent product failures, our approach to approved products will be – trust but verify.”
AUTHOR
Laura Dew
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