ASIC remediation regime could bankrupt small advice practices
Requiring small financial planning practices to pay significant client remediation bills in as little as one month has the potential to bankrupt them, according to the Financial Planning Association (FPA).
The FPA has told the Australian Securities and Investments Commission (ASIC) that, for this reason, its proposed client remediation protocols should be scaled to take account of the scale and financial capacity of licensees.
Pointing out that the new regime will cover everything from large corporations to sole practitioners, the FPA said ASIC needed to accept the need for a proportionate response.
“Large organisations are typically able to absorb the cost of paying a $2 million bill within a 30 day period (as required under the new FSRC 2020 Act) more easily than small businesses who may have a more restricted cash flow,” it said in a submission filed with ASIC this month.
“The requirement to pay a significant remediation bill over a one month period has the potential to bankrupt a small business, impacting its ability to pay the compensation owed,” it said.
What is more it suggested that it would better serve the needs of consumers if financial planning businesses were allowed to remain in business to help them meet their remediation obligations.
“Depending on the type and severity of the breach related to the remediation, the continued operation of a small business could ensure compensation funds are available, benefiting affected consumers,” the FPA submission said.
In a specific recommendation to ASIC, the FPA said it supported the rights of consumers to be remediated appropriately and in a timely manner.
“However, we recommend flexibility be given for the payment of compensation by small licensees, to be considered and approved by ASIC on a case by case basis against strict criteria for both the licensee and the breach subject to the remediation,” it said.
“A licensee who has gained ASIC approval as meeting the strict criteria would be required to make a written offer of compensation to affected clients within 30 days of the completion of the investigation (as per the timeframe in the FSRC 2020 Act) that includes the ASIC approved payment plan.”
Recommended for you
ASIC has released the results of its first adviser exam to be held in 2025, with 241 candidates attempting the test.
Quarterly Wealth Data analysis has uncovered positive improvements in financial adviser numbers compared with losses in the prior corresponding period.
Holding portfolios that are too complex or personalised can be a detractor for acquirers of financial advice firms as they require too much effort to maintain post-acquisition.
As the financial advice profession continues to wait on further DBFO legislation, industry commentators have encouraged advisers to act now in driving practice efficiency.
