ASIC today reports on the results of two financial advice industry engagement projects conducted during the 2013–14 financial year. This work included meetings with representatives of 95 Australian financial services (AFS) licensees.

Deputy Chairman Peter Kell said, 'Engaging with industry and stakeholders gives ASIC a greater understanding of key issues facing AFS licensees.

'These projects allow ASIC to focus future regulatory actions on areas that the industry identifies as posing higher risks'.

Future of Financial Advice (FOFA) reform implementation

ASIC today released Report 407 Review of the financial advice industry’s implementation of the FOFA reforms (REP 407), which presents the findings from an ASIC review of the implementation of the FOFA reforms by 60 AFS licensees.

Key findings in REP 407 include:

1. Impact of FOFA on adviser numbers, products and services:

• a number of AFS licensees reported an increase in their provision of scaled advice and strategic advice as a result of FOFA, however, for most AFS licensees, the type of advice they provided and their adviser numbers had not changed
• the advice industry continues to be highly concentrated, and AFS licensees are often affiliated to issuers of financial products, and
• most AFS licensees had reviewed their approved product lists in light of the FOFA reforms.

2. Conflicted remuneration:

• most AFS licensees reported changes to their revenue streams as a result of the ban on certain forms of conflicted remuneration, and
• blended fee models were common, with AFS licensees stating their advisers charged for advice through a range of methods, including advice fees and commissions.

3. Compliance challenges and risks:

• most AFS licensees stated the biggest challenges they had experienced in implementing the FOFA reforms related to the requirement to provide fee disclosure statements, and the changes they needed to make to their systems, and
• AFS licensees considered the best interests duty posed a relatively high risk of non-compliance in the future. To mitigate this risk, AFS licensees had revised their advice systems and procedures, and most were relying on the ‘safe harbour’ steps under the Corporations Act 2001 to demonstrate their compliance with the best interests duty and related obligations.

ASIC notes that it collected the data for this report prior to the recent amendments to the FOFA reforms.

Download REP 407

New AFS licensee visits

In a separate project, ASIC visited 35 newly licensed financial advice businesses, a sample representing just over a quarter of AFS licensees that were granted an AFS licence between July 2012 and June 2013, with an authorisation to provide personal financial advice to retail clients.

A similar project was conducted in the 2012–13 financial year (refer: 13-197MR).

The intention behind these visits is to proactively engage with our newer regulatory population, as well as assisting them to better comply with the AFS licensee obligations.

We asked AFS licensees questions about their business model, advice processes, and approach to risk and compliance. Some of the key findings from the project include:

• In light of the FOFA obligations commencing on 1 July 2013, 97% of new AFS licensees indicated they could demonstrate compliance with the new FOFA obligations.
• Just over 80% of AFS licensees providing self-managed superannuation fund (SMSF) advice require their advisers to undergo additional training before providing SMSF advice. This is significantly stronger compared to the 2012–13 project, in which only 48% of new AFS licensees required their advisers to undergo additional training before providing SMSF advice.
• 82% of AFS licensees sought external assistance in relation to some compliance functions (compared to 86% in 2012–13). It is important for AFS licensees to understand that, while using the services of external parties for certain compliance functions may be necessary for some AFS licensees, doing so doesn't alter the AFS licensee's obligations under the law.