ASIC has released a report on how large financial advice firms have addressed serious conduct, compliance and customer remediation issues, revealing serious concerns about how the industry has operated over the past five years.
The report is part of the regulator's broader Wealth Management project covering the financial advice provided by Australia's largest financial institutions - AMP, ANZ, CBA, NAB, Westpac and Macquarie. The latter was excluded from this particular sub-project because ASIC said Macquarie had already undertaken a review and remediation program that was "largely consistent with the aims of this project," paying out more than $20 million to customers in the process.
ASIC sought to identify what it described as "serious compliance concern" (SCC) advisers. These included advisers who had engaged in dishonest, illegal, deceptive and/or fraudulent misconduct; conduct that would result in instant termination or dismissal in normal circumstances; deliberate non-compliance with financial services laws; and gross incompetence or gross negligence.
As at December 2016, the regulator has identified 185 advisers fitting this description, 26 of whom have been banned, with a further 75 under investigation. ASIC noted that in December 2015, of the 149 SCC advisers ASIC had identified, 73 had not been the subject of a breach report or any other notification from their licensee prior to licensees' obligatory reporting as part of this project.
Furthermore, ASIC said that in instances where breach reports had been made about a SCC adviser, they were often made a "substantial amount of time" after the relevant institution was made aware of misconduct.
Part of the problem, ASIC said, is that there are often weak controls in place in regards to background-checking and auditing of financial advisers. In many cases, advisers moving to a new licensee provided references from former colleagues whom ASIC determined were not independent and, regardless, wouldn't have access to the compliance records of previous licensees.
ASIC highlighted the Australian Bankers' Association's reference checking and information sharing protocol as a positive step, but noted that its scope is limited to subscribers. At the time of the report's release, this represented only 38% of advisers on ASIC's Financial Advisers Register.
In regards to remediation and compensation, ASIC said institutions had paid out $30 million in total by 31 December 2016. This was paid to approximately 1347 customers affected by 97 SCC advisers, and excludes CBA's Open Advice Review remediation program. $5,928,821 was paid in response to customer complaints, $22,765,365 was paid under previous or existing remediation processes and $1,572,086 paid under the frameworks for large-scale review and remediation developed "as part of this project."
"ASIC acknowledges the work undertaken by the financial advice institutions to improve their practices, and broader compliance approach, since the period of conduct under review, supported by recent legislative and regulatory reforms," ASIC deputy chair Peter Kell said.
"However, there is further work to be done to assist in re-building consumer trust and confidence in the financial advice industry."