ASIC's review of adviser misconduct within large institutions

Published by the Stockbrockers and Financial Advisers Association of Australia in the Stockbrokers and Financial Advisers Monthly, April 2017.

Financial advice firms need to create and foster effective processes and an organisational culture that can quickly identify non-compliant conduct, report it and provide appropriate redress for the customer.

This recommendation follows the release of ASIC Report 515 Financial advice: Review of how large institutions oversee their advisers. Focusing on the conduct of the financial advice arms of AMP, ANZ, CBA, NAB and Westpac, the review was conducted in response to information received about potentially significant historic advice failings in Australia’s largest financial advice institutions.

Our findings indicate that cultural factors in large financial advice institutions may have contributed to poor outcomes for customers.

As part of the review we tested each institution’s ability to accurately identify advisers providing non-compliant financial advice. We also looked at whether the culture of these institutions prioritised the interests of customers.

Many of the institutions failed to make sure their internal processes focused on doing what was right for the customer. This was reflected in examples of inadequate information-sharing of serious non-compliance by advisers, inadequate background and reference checking and inadequate audit processes to properly assess advisers’ compliance with their obligations.

What can you do to improve the quality of financial advice?

While significant work has been done to improve practices and identify and remediate customers affected by poor financial advice, there is still more work to be done to re-build consumer trust and confidence in the financial advice industry.

Your organisation’s internal processes need to put the customer first. Where there are failings, you need to make sure that you act quickly to provide a response in the interests of your customers.

To make sure you are creating a culture of compliance in your organisation, you need to:

  • breach report in a timely way
  • carry out comprehensive background and reference checks, and
  • adequately assess whether advice has complied with the best interest duty and other statutory obligations.

Depending upon the size, nature and complexity of your advice business, data analytics and key risk indicator tools can be used to improve the early identification of potentially non-compliant advice within your organisation. When monitoring and supervising advisers in your retail advice business, you should:

  • identify the available data
  • determine which data sources will provide reliable data
  • choose appropriate key risk indicators for the nature, scale and complexity of your business
  • ensure appropriate testing when setting thresholds for key risk indicators, and
  • monitor and test key risk indicators.

We have also developed three checklists to help you to:

  • conduct background and reference checks before appointing a new adviser
  • audit advisers to assess their compliance with the best interests duty and related obligations when providing personal advice, andd
  • develop and implement key risk indicators to identify high-risk advisers.

What have we done?

As of 31 December 2016, we have banned 26 of the 185 advisers reported to ASIC for serious compliance concerns. Investigations and surveillance activities are ongoing for many of the others.

Approximately $30 million has so far been paid to approximately 1,347 customers affected by non-compliant advisers covered by the review. We are working closely with these institutions to effectively identify, review and remediate customers who have been affected by past non-compliant advice.

We are engaging with the institutions to discuss the findings of our customer file reviews and will consider appropriate regulatory action.

ASIC’s MoneySmart has also launched a digital financial advice toolkit to help clients navigate the financial advice process, understand what service they should expect from an adviser, and evaluate the advice they receive.

The tool complements and supports our regulatory and enforcement work in the financial advice sector and is designed to improve demand-side capability at critical moments.

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Last updated: 10/08/2021 11:31