Planners caught in ASIC headlights

TheAustralian Securities and Investments Commission(ASIC) has vowed to continue its hard line against the financial planning industry after a recent spate of tough actions.

In recent weeks, ASIC has requested an enforceable undertaking of financial planning dealer groupRetireInvestand imposed a new licence condition onLifespan Financial Planning, claiming it took the actions to improve the compliance and disclosure of both groups.

The corporate regulator also revealed it is conducting a surveillance campaign of tied advisers in banking institutions.

The moves all come on top of the damning report into the financial planning industry released by ASIC in conjunction with the Australian Consumers’ Association (ACA) just over a month ago, which claimed 47 per cent of financial plans prepared by advisers were ‘borderline’ or worse.

ASIC director of regulatory operations Sean Hughes has confirmed the corporate watchdog is focusing heavily on planners, saying “we won’t be taking our headlights off this industry”.

According to Hughes, financial planners warrant a “particular degree of close attention” as they have traditionally given rise to areas of concern.

“As the consumer protection regulator, we have to stay on top of [planners]. It is better for both their reputation and ours,” he says.

Up to 25 per cent of ASIC’s regulatory surveillance budget is spent monitoring financial planners, and Hughes says “we are starting to see the fruits of our labours”.

He has warned that the wave of regulatory action against financial planning groups is set to continue, saying it would be “fair to say there are a number of matters in the pipeline”.

Lifespan Financial Planning, though fully cooperating with ASIC in regard to its new licence condition aimed at improving its compliance procedures, has responded to the action by criticising the regulator’s hard line approach.

The dealer group says ASIC is at risk of contradicting its own basic charter through the enforcement of some compliance procedures.

Lifespan’s complaint is that ASIC’s requirement of the group to produce written plans during the provision of limited advice, including things such as small investments, is sometimes not commercially justified.

Ultimately, Lifespan says enforcement of the requirement could lead to small investors being unable to afford financial advice due to the increased costs incurred by dealers.

The dealer group also says ASIC has not yet produced policy statements or written guidelines in the area of limited advice.

Lifespan says this means “ASIC’s vague reliance on so called ‘industry standards’ in these areas is inadequate and less enlightening than we have a right to expect from the industry regulator”.

The dealer group believes the financial burden of limited advice plans is felt by planning groups not owned by large institutions who cannot afford to service small investors at an ongoing loss.

Despite the criticism, ASIC is still focused on enforcement of compliance and disclosure regulations after the ACA/ASIC report on financial planning.

In response to the findings, the regulator has met with all dealer groups that had plans ranked either ‘poor’ or ‘very poor’ by the report, identifying more than eight as entities that will undergo continued surveillance.

Hughes says this will provide a more accurate assessment of individual groups.

The surveillance will involve checking compliance systems and training, as well as analysing a sample selection of client adviser files to identify any areas of concern.

The ongoing surveillance campaign of tied advisers recently flagged by ASIC will result in a new report to be released by June 2003.

The campaign, examining eight financial institutions of mainly banking backgrounds, has already identified three target entities which will undergo further scrutiny.

The focus of the campaign is on disclosure of preferential commissions for in-house advisers and how they affect financial advice quality.

Preliminary findings reveal advice in some cases has been of a low standard as a result of commissions.

The enforceable undertaking given byRetireInvestwas an early result of this campaign, after an ASIC investigation found problems with the financial planning group’s compliance procedures.

ASIC found that some authorised representatives within RetireInvest failed to fully disclose fees, commissions and benefits payable to them and had in some cases neglected a thorough needs analysis of their clients.

The regulator was also concerned that the compliance processes of RetireInvest were inadequate to properly identify and report compliance breaches, and that the complaints handling system was not always followed by relevant officers.

RetireInvest general manager David Phelan says the dealer group will fully cooperate with ASIC to improve its compliance.

“We are all about getting on with improving what we need to improve, and with the publicity in recent times, we have to take a lead on areas that do need improvement,” Phelan says.

“I don’t have any issues with ASIC’s approach. We welcome its involvement, and right throughout the process our relationship and communication has been strong,” he says.

The enforceable undertaking requires RetireInvest to appoint an independent compliance consultant who will review compliance systems and procedures, make recommendations for changes and redress complaints made by clients.

Despite the large number of actions and campaigns being directed at financial planners, Hughes will not label it a crackdown.

“It is more accurate to say that ASIC has always had a keen interest in compliance, and where we do detect that standards have slipped, we won’t ignore it,” Hughes says.

He says the close focus on the financial planning industry is particularly due to its role in providing advice on retirement savings, an area where a high proportion of the population is likely to be affected.