At a parliamentary joint committee on corporations and financial services hearing yesterday, member and Coalition MP Bert van Manen asked ASIC about Report 515, Financial advice: Review of how large institutions oversee their advisers.
In particular, he asked ASIC about appendix four of the report where it identified key risk indicators for monitoring and supervising advisers.
“I’d be interested to know what if any work you were doing in at least a preliminary fashion with the industry to identify whether advice licensees actually have the capacity and if so what capacity to actually identify and deal with any of these key risk indicators,” Mr van Manen asked.
“I’m concerned that I don’t believe that any licensee in the industry or very few if any actually have the capacity to produce a report for you as a regulator that could show that they are able to address all of those key risk indicators in a timely fashion and therefore I’d have concern about their capacity to hold a licence if this is what’s going to be applied by ASIC in its reviews.”
According to appendix four, the key risk indicators are put into categories according to product or advice type, adviser profile, customer profile. Some of the risks cited by ASIC include high ratio of records of advice to statements of advice provided to customers, adverse adviser audit outcomes, and a high percentage of advice to elderly or vulnerable customers.
Before adopting the key risk indicators, ASIC suggested advice licensees should consider:
- Identifying the available data;
- Determining which data sources will provide reliable data;
- Choosing appropriate key risk indicators;
- Ensuring appropriate testing is undertaken when setting thresholds for the key risk indicators; and
- Monitoring and testing key risk indicators and relevant thresholds on a regular basis.
In response, ASIC executive director of wealth management Joanna Bird said a lot of licensees find Report 515 to be very helpful.
“They’re the sorts of issues that they’re taking into account when they’re doing the current industry standard of actually sitting there and reviewing a sample of a financial adviser’s files. So that’s how it’s being used in most circumstances now,” Ms Bird said.
“However, a number of licensees are as you’ve intimated quite rightly looking at technological solutions that will help them do this a lot better.
“This year ASIC had a regtech event where we got a large number of providers in who are trying to provide those solutions and they sampled them and showcased them so we’re working with both the regtech providers and the industry to help them make these processes [as] automated as it can.
“But even if while those things are still in development, licensees are able to use this sort of information to help them conduct their sort of manual audits of advisers.”
[quote=Anon]Simple solution. Just make it illegal to receive or give financial advice. Then current advisers can go into publicly funded supervision and monitoring roles to ensure the law is upheld.
Actually not a bad idea now days at all.
[quote=Mind Change ]I was one of the 25% who opted to stay…but I think it’s looking like it’s time to go…[/quote]
if I am honest with myself, i think that is the right thing for me to do too, it’s too complex an operating environment. too many obligations to satisfy
All advisers should either be self licensed, or directly employed by a licence holder. The law should be amended to get rid of the “authorised representative” concept which is an outmoded hangover from the old life agent days.[/quote]
i get really annoyed with anonymous posters posting this stuff. clearly, you know we are all in a pickle, and if you are doing things that are working why not share with others and lighten our burden.
my understanding is that the self-licensed model is incredibly onerous. what would be really helpful is some examples from people who have an afsl and how they are meeting their obligations for PI, compliance, cpd, annual reporting to asic etc etc
Self licensing is no more onerous than being an AR. Yes, there are higher PI costs and direct compliance obligations with ASIC. But overall, these are often no greater than the total fee load and compliance obligations with a dealer group. Dealer group compliance needs to have a lot of extra complexity built in to enable the dealer group to supervise and monitor lots of disparate self employed advisers.
The self licensed model can be much simpler and more focused if it only needs to apply to your own practice. All of the services provided by dealer groups such as PI, CPD, compliance consultants, software, research etc are readily available on the open market for self licensed practices to purchase directly as needed.
The real problem is the underlying licensing model. There is no way any licensee can effectively supervise and monitor lots of disparate, self employed practices over whom they have very limited control. The “authorised representative” model is unworkable. No amount of “Regtech” or ASIC oversight will ever change that.
All advisers should either be self licensed, or directly employed by a licence holder. The law should be amended to get rid of the “authorised representative” concept which is an outmoded hangover from the old life agent days.
I was one of the 25% who opted to stay…but I think it’s looking like it’s time to go…
Simple solution. Just make it illegal to receive or give financial advice. Then current advisers can go into publicly funded supervision and monitoring roles to ensure the law is upheld.
i’ll sign up for that. a generous DB plan too. thank you.
ASIC is dreaming if they think RegTech works in it’s current forms.
No wonder the banks are handing their licenses back en masse. The few institutions that had the financial capacity to effectively monitor have determined ASIC’s expectations and interpretations are impossible to work with, particularly when ASIC uses new interpretations of old laws and forces AFSL’s to do back testing. The largest institutions have given up on the industry and left. The few remaining can’t wait to exit.
If that’s not a sign the system is fundamentally broken – I don’t know what is.
All that’s left are heart and soul advisers at the coal face who care deeply for their clients and are trying desperately to make it work. Sadly though – most will fall victim to the stark reality of needing the industry needing more auditors and file checkers than actual practitioners. Who pays for all this – the clients of course.
The predictions about industry numbers declining have been so light on it’s scary. Post RDR in the UK – if you apply their adviser to population ratio in Australia then we will see a 66% reduction in adviser numbers. However the RDR changes were minor in comparison to here – we have FASEA, an unworkable code of ethics, look-back on ASF, the insurance changes, a PI crisis and Licensee fees skyrocketing. Advisers that get through all of this unscathed were be rare indeed (or currently have no clients).