ASIC has pointed to a technicality in its reporting processes to explain the difference in its response to poor compliance results in risk advice versus super advice, as it revealed further details in its approach to the report that led to the LIF reforms.
ASIC was questioned by Coalition senator and economic references committee member Amanda Stoker around the “huge uproar” created by Report 413, which led to the Trowbridge inquiry into life insurance advice and ultimately the current LIF commission settings.
“The 37 per cent failure rate for financial advice, assessed as part of the 2014 ASIC Report 413 review of life insurance advice resulted in a huge uproar and ultimately led to the Life Insurance Framework in 2017,” Senator Stoker said.
“ASIC’s media release 14-263MR included the statement ‘This is an unacceptable level of failure, and the life insurance industry is now on notice to lift standards and professionalism’.
“I have not been able to locate a similar statement to coincide with the release of ASIC report 639, on the quality of financial advice provided by superannuation funds, despite what appears to be a materially worse outcome.”
The regulator’s Report 639 into advice provided by super funds was similarly flagged by Coalition MP Bert van Manen at a recent parliamentary joint committee hearing, when Mr van Manen questioned why the report had not “led to major reforms of the super sector” when just 49 per cent of advice sampled in the report had been fully compliant with the best interests duty.
ASIC said it had “refined its process for reporting advice review compliance” since the release of Report 413 in 2014, when the FOFA laws had been in their infancy.
“We [now] identify all non-compliant advice but distinguish in our reporting about non-compliant advice between advice that indicates a risk of consumer harm (referred to as financial or non-financial detriment in Report 639) and advice that does not,” the regulator said.
“It is the former category of advice that causes us concern.”
ASIC said such a distinction was not made in Report 413, but that “given the law was new, in our review of post-FOFA advice for [Report] 413 where there was any doubt as to the final rating, we gave advisers the benefit of the doubt”.
The regulator said the report had comprised a mix of risk advice files from before and after the FOFA laws were implemented, with 33 per cent of post-FOFA advice files failing while 41 per cent of pre-FOFA files had failed.
In regards to Report 639, ASIC said while it found 36 per cent of super advice files did not demonstrate compliance with best interests duty and related obligations, “this was as a result of procedural, disclosure or record keeping deficiencies and did not indicate the member was at risk of suffering financial or non-financial detriment”.
The regulator concluded the report did not warrant further action as only 15 per cent of files had indicated the member was at risk of suffering a detriment.
“ASIC has not taken enforcement action against any specific funds or advice providers as a result of the advice review findings [in Report 639] and it does not plan to do so,” ASIC said.
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