Advisers mistakenly indicating lack of conflicts at licensees
Some 41 per cent of financial advisers believe they have no conflict of interest in their business, according to compliance firm Holley Nethercote which the firm says indicates a lack of understanding.
In its 2024 Compliance Trends Survey report, which surveyed over 160 licensees, it found a large portion of licensees felt they had no conflicts.
The proportion was largest at small licensees; 67 per cent of those with six to 15 representatives and staff, and 65 per cent of those with one to five said they did not perceive any conflicts of interest in their business.
This reduced as firms grew in size, with around a third of licensees with more than 100 representatives and staff saying they did not perceive any conflicts of interest in their business.
The most common conflicts identified were benefits or gifts from a client, benefits from a third party, and internal non-arm’s length ones.
Looking at specific licensee types, 41 per cent of financial advisers said they had no conflicts.
“It is surprising to find how many licensees consider that they don’t have any conflict of interests,” the firm said. “It is difficult to know whether licensees are failing to identify conflicts or have changed their business operations such that conflicts are avoided. This is more likely to be the case with smaller licensees who have simpler business models.”
However, Holley Nethercote noted that the figures across all sizes of licensees were down from 2023’s figures.
Commenting on the findings, Holley Nethercote partner and financial services lawyer Sam Hills told Money Management firms needed to stop believing it was a positive to not have any conflicts.
She said smaller firms, in particular, are under the misguided belief that it is good to not have any breaches, whereas it is rather a matter of actively identifying them to pay attention to how they are being managed.
“I would expect them to have at least four or five conflicts. A conflict of interest is not defined in the legislation, but in ASIC’s regulatory guidance it gives a definition. This states when the interests of the licensee or one of its representatives come into conflict with the interest of a client. The guidance also makes it clear that ASIC is not expecting them to completely avoid conflict of interest; it just needs them to be managed.
“This definition also extends to apparent and potential conflicts, where it looks like it could be a conflict and still needs to be managed such as by disclosing it to the client or mitigating it in some way.
“[If they think they have no conflict], then that means they don’t understand the regime properly and that is a concern because what this regime is about is being aware of what’s happening in your business and having that documented.
“If you haven’t reported anything or you haven’t catalogued where things are going wrong in your business, it’s an indicator that you aren’t meeting your obligations.”
Pleasingly, over 90 per cent of licensees said they did maintain a conflict of interest register to document any issues.
AUTHOR
Laura Dew
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