FSCP hands down layered advice decision

The Australian Securities and Investments Commission’s (ASIC) third FSCP finding is in relation to an adviser known only as “Mr X”, following the protocol that Leah Sciacca, a senior executive leader for financial advisers at ASIC, laid out at an FAAA roadshow event in Sydney in May, where she confirmed that neither the register nor the press release would typically disclose the name of the financial adviser involved in a particular matter unless the outcome is required to be displayed on the Financial Advisers Register (FAR).

According to ASIC, Mr X gave statements of advice (SOAs) to three clients on the same day that the FSCP sitting panel determined contravened sections of the Corporations Act 2001.

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“The relevant provider adopted the layered advice strategy for each of the three clients, in circumstances where it was not appropriate to do so,” ASIC said.

“It was not clear as to how the limited insurance advice scope was effective in each client’s circumstances without a contemporaneous assessment of their superannuation.

“The relevant provider did not adequately consider the three clients’ objectives, needs, and financial situation or base all judgements on their relevant circumstances.”

The corporate regulator added that Mr X did not collect enough information on their clients’ financial situation, which resulted in the adviser relying on “generic, unsubstantiated reasons to support the recommendations for the replacement insurance products”.

As a result, the sitting panel has directed that Mr X ”engage an independent person with expertise in financial services laws compliance to pre-vet and audit the next 10 SOAs that include a recommendation in relation to insurance; and the next 10 SOAs that include a recommendation in relation to superannuation, that the relevant provider intends to present to a retail client”.

Mr X will also be required to provide the results of the audit to ASIC and pay any costs related to the independent person’s work.

Commenting on the FSCP decision, Michael Miller, a director at Capital Advisory, said that while the decision relates to inappropriate scoping of insurance advice, “ASIC has referred to this in the past as layered advice, which is not a defined term, and hasn’t always explained in a lot of detail what they mean by this”.

“In previous actions in relation to layered advice, some of the hallmarks have been: scope of advice is extremely limited, often to only one area of advice; fact finding is limited to only the ‘in scope’ areas; a consequence of this is that there is no way to know whether the narrow scoping is appropriate; the scoping ignores objectives stated by the client, which are outside the narrow scope of advice; a promise or offer to deal with other areas of advice at a later time,” Mr Miller said.

The director added that in terms of layered advice, ASIC has primarily been concerned with scoping that’s done for the convenience and commercial outcomes of the adviser rather than what is best for the client.

“What is interesting about this panel decision is that in the past, ASIC has applied bans to advisers and responsible managers, and cancelled AFSLs for the use of a layered advice strategy on four separate occasions,” Mr Miller said.

“It is within the powers of a sitting panel to make an order that suspends or prohibits an adviser’s registration.”

He said the limited information published by the panel makes it difficult to know what the difference may have been, though pointed to the finding relating to three pieces of advice as the possible cause.

“Each of the four actions ASIC had itself applied indicated that the layered advice strategy was applied as a business rule to all clients of the individual/AFSL, so the difference in this case may have been that it was found to have been a case of inappropriate scoping for a few clients, rather than applied to all clients of the individual/practice,” Mr Miller said.

“Scaling and scoping advice can be a complicated issue to get your head around. When done correctly, it is of great benefit for our clients. When done poorly however it does increase the risk of giving low-quality advice.”

The FSCP kicked off at the start of last year, with its 31 part-time members being appointed in February.

In August last year, ASIC released regulatory guide 263, which provides an overview of the purposes of the FSCP, as well as processes and procedures around hearings and decisions.

Meanwhile, information sheet 273 explains the rights of advisers affected by an FSCP decision, including how to make an application to vary or revoke a decision and how to seek an independent review of an FSCP decision.

The FSCP published its first finding on the outcomes register in June, with that decision concerning an adviser known only as “Mr S”, who was found to have impersonated a client during two telephone conversations with a bank in an attempt to facilitate a transaction.

This was followed up later that month when the FSCP found that an adviser, anonymised as “Mr M”, recommended in an SOA that his client, who had been cold-called, switch their superannuation from one fund to another.

According to a summary of the decision, Mr M failed to consider the life, TPD, and IP insurance the client held in their existing superannuation fund when recommending the switch.