The emphasis on bannings as a preferred regulatory tool by the corporate regulator has led the Hayne royal commission to suggest that licences should be given out to authorised representatives.
The interim findings of the Hayne royal commission found that ASIC’s emphasis on the use of banning orders “invited attention to a more basic issue about regulatory structure”.
The report asked whether advisers should be individually licensed, noting that the present regulatory structure permits holders of a financial services licence to authorise a person to provide a specified financial service or services on behalf of the licensee.
The licensee must notify ASIC of the authorisation and is responsible for the conduct of an authorised representative, and that responsibility extends to loss or damage suffered by the client.
“What is gained by having this structure? Would there be advantage in providing for the licensing of authorised representatives, thus bringing them under the direct supervision of ASIC?” the report said.
Throughout the Hayne commission’s hearings of advice, it found that licensees treated the provision of ongoing services “as a matter of no concern to them”, and that provision of those services was treated as a matter between only the client and the adviser.
“At least when an adviser left the licensee, and the client became an ‘orphan client’, the licensee knew that that adviser would not be providing ongoing services to that client,” the report said.
“But the licensees did nothing in response. They simply continued to take the money that was deducted from the client’s investments in payment of the ongoing service fee.”
The interim report also noted that advisers often treated ongoing service arrangements as though they were nothing but trail commissions for the advice that had already been given.
“The fees were both a steady source of income (for little or no effort) and an important element that would contribute to the capital value of the adviser’s business,” the report said.
“In some cases, advisers continued to charge ongoing service fees even though the client was dead and had died years earlier.
“Even in those cases, the licensee did not terminate the adviser’s contract for dishonesty; the licensee simply ‘warned’ the adviser not to continue the conduct.”
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