An Australian Securities and Investments Commission report has found many mid-tier licensees are not checking the credentials of advisers leaving other dealer groups, posing a risk to businesses and consumers.
ASIC yesterday released the findings of its questionnaire of financial product advice licensees, which reviewed the business model, training, dispute resolution and risk management practices of the 21st to 50th largest licensees.
Among a number of key findings, the report states some licensees are bringing new advisers onto their licence without sufficiently undertaking background checks.
“Some [licensees] did not conduct reference checks, while others attempted to but found that previous licensees were reluctant to provide references or there were restrictions on the references provided,” the report stated.
“This is a surprising and significant shortcoming because it allows ‘bad apples’ to move between licensees, thereby transferring the risk of their poor advice.
“Our experience is that the effort involved in remediating the poor advice and compensating clients affected by such ‘bad apples’ is almost always significantly greater than the effort involved in properly vetting a new adviser in the first place.”
The report recommended pre-vetting the advice of a prospective new adviser for a minimum period before allowing them to provide advice unsupervised.
It also reiterates that “where a new licensee fails to discover that an incoming adviser is providing poor advice for some time after they have joined the licensee, it will not be a defence that the new licensee has not yet had the opportunity to audit the adviser”.
Rather, the licensee will be liable for breaches committed, the report reminded.
More broadly, the report said that while all participating licensees do conduct advice reviews, ASIC is concerned that “some licensees may not have sufficient resources to properly conduct these reviews”.
“Provision of inappropriate advice” was the most commonly reported “high probability risk” facing licensees.
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