ASIC last week released the findings of a review it undertook into the products that ANZ, CBA, NAB, Westpac and AMP financial advice licensees recommend and the quality of the advice provided on in-house products.
As part of the review, ASIC specifically tested whether advisers were complying with best interests duty and other related obligations when recommending an in-house superannuation platform to new customers.
It collected a sample of customer files from the largest advice licensee for each institution to review the quality of advice being provided.
Overall, ASIC found non-compliant advice in 75 per cent of the customer files reviewed.
There were two main areas which led to advice being classed as non-compliant, which were the failure to sufficiently research and consider the customer’s existing products and failure to base all judgements on the customer’s relevant circumstances.
“We commonly saw the unnecessary replacement of financial products, where advisers recommended that customers switch to a new product when their existing product appeared to be suitable to meet the customer’s needs and objectives,” ASIC said in the report.
While in the majority of cases, customers were not worse off as a result of the advice, in 10 per cent of files reviewed, ASIC said it did “have significant concerns about the potential impact of non-compliant advice on the customers’ needs and objectives”.
“We were concerned because the advice to change insurance arrangements resulted in exclusions or loadings being applied to the new policy, and it appeared that the adviser had not made adequate inquiries into the customer’s pre-existing medical conditions before providing the advice,” the ASIC report said.
The corporate regulator said it was also concerned by some of these files because the new insurance arrangements within the new superannuation platform resulted in the customer paying significantly higher insurance premiums, on a like-for-like basis.
“We were also concerned because advice to move to a new superannuation platform resulted in a significant increase in ongoing superannuation product fees without additional benefits being identified that were consistent with the customer’s relevant circumstances,” the report said.
Verante Financial Planning director Liam Shorte said in order to stay compliant with the best interests duty for SMSF advice, it is very important that advisers look at the potential downsides of leaving a superannuation platform for a client.
“This includes exit fees, insurances, also taking into account any enterprise bargaining agreements restricting options on where SG goes. Where we can’t replace insurance then we need to ensure it can be kept in the existing fund and enough balance retained to cover the premium,” he cautioned.
Mr Shorte also notes that he would rarely recommend an SMSF for someone with an average balance who only wants shares, ETFs and managed funds.
“While we don’t use superannuation platforms for SMSFs we do use some of the investment wraps to access some sectors and new options like SMAs. The same caution and due diligence needs to be taken in replacing platforms,” he said.
While the use of an in-house platform isn’t necessarily an issue, he said, advisers need to ensure that the choice of underlying investments in the portfolio does not challenge the best interests duty.
With the expansion of ETFs, Mr Shorte said that the need for platforms has reduced considerably.
“Platforms will have to compete so I expect major changes to platform costs in the coming years,” he said.