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Friday 19 January 2018

18-015MR ASIC warns financial services licensees against 'cutting corners' on death nomination forms

The Australian Securities and Investments Commission (ASIC) is putting the financial advice sector on notice about meeting requirements for witnessing signatures, after finding issues with advisers failing to correctly witness binding death nomination forms for superannuation benefits.

ASIC has become aware of a widespread practice among financial advisers of witnessing or having staff members witness client signatures on binding death nomination forms without being in the presence of the signatory. In other cases, forms have been backdated. Each of these practices fails to comply with the law and may lead to the nominations being invalid.

Acting ASIC Chair Peter Kell said, 'Improper and unethical practices around binding death nomination forms can lead to very poor consumer outcomes. Advisers, licensees and their staff who engage in these practices should consider this a final warning. AFS licensees have ultimate responsibility for the conduct of their representatives and need to effectively monitor and supervise their representatives.'

The proper execution of binding death nomination forms is important because this form directs the trustee of the superannuation fund to pay superannuation and insurance benefits in accordance with the account holder's instructions. Improper witnessing of the form can make it invalid, resulting in the death nomination being rejected. The trustee may then choose to exercise its discretion in a manner other than in accordance with the account holder's nomination, causing delays and uncertainty about the payment of the death benefit.

Australian financial services (AFS) licensees and advisers have a professional and legal obligation to comply with the law. Taking short cuts which result in important forms being invalidated and thereby jeopardising the account holder's wishes does not meet the minimum advice and conduct standards expected by ASIC.

AFS licensees must:

  • Train staff on their professional and ethical obligations

AFS licensees have an obligation to ensure that their staff are adequately trained and understand their professional and ethical obligations. A high standard of adviser professionalism, judgement and integrity is vital to ensuring that consumer trust and confidence is maintained in the financial services sector.

  • Monitor and supervise their representatives 

ASIC expects that licensees will maintain adequate monitoring and supervision arrangements as an integral feature of their risk and compliance frameworks. Part of monitoring and supervising advisers involves licensees regularly reviewing the conduct of their advisers and performing 'spot checks' of key documentation to ensure that they are appropriately executed.

Where irregularities are found in key documentation, licensees should conduct the necessary enquiries in a timely manner. This may include contacting the affected clients, remediating clients where appropriate and conducting broader reviews of the relevant adviser's client files.

  • Remediate consumers where misconduct is found

AFS licensees must ensure that they proactively address any systemic problems caused by the conduct of their advisers and, where necessary, put processes in place to remediate their clients in a timely, fair and transparent way for loss.

ASIC has published guidance on client review and remediation in Regulatory Guide 256 Client review and remediation conducted by advice licensees (RG 256). While the guidance is directed at licensees who provide personal advice to retail clients, the principles set out in the guidance should be applied to other review and remediation situations where relevant.

  • Identify breaches in a timely manner  

ASIC expects licensees to have effective systems in place for identifying, escalating and reporting breaches in a timely manner. Inadequate or late reporting could indicate to ASIC that the licensee has broader compliance and cultural issues and would be a red flag for closer scrutiny.

Background 

Binding death nomination forms are regulated by the Superannuation Industry (Supervision) Act 1993 (Cth) and are an important part of estate planning. In the event of a person's death, they direct the trustee of the person's superannuation fund to pay the person's superannuation and insurance benefits (if any) in accordance with their wishes.

Last updated: 16/02/2018 04:54