As part of research set to be made public this year, ASIC will show fieldwork that indicates an overwhelming failure to comply with best interests duty and other associated obligations.
Key pain points include documentation in advice files, consideration of existing products when recommending a new fund is set up and poor audit processes.
“The industry as a whole is struggling to get to grips with how to best implement the key best interest[s] duty requirements,” deputy chair Peter Kell told the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry today.
In particular, Mr Kell fears remediation processes for clients could be compromised by poor documentation processes. ASIC has been firing warning shots about statements of advice in particular for several months.
“The case with remediation processes in the past is they are more difficult to implement where record-keeping is poor,” Mr Kell said.
“It’s not simply a matter of just record keeping. If, for example, there are disputes between clients, an adviser and a licensee, ensuring the reasons why the client received the advice they did is on file and set out is critical,” he said.
Adequately considering existing insurance held in superannuation prior to switching clients over to an SMSF remains a problem, Mr Kell said, and one that ASIC has actively penalised advisers for.
Further, advice related to property investment and “one size fits all” advice is also of concern for ASIC.
Despite his fighting words, Mr Kell said consumer detriment as a result of this poor advice is of a smaller magnitude.
“It is very disappointing to say the least. I should note that for the majority of those files, there is not necessarily an indication that there is immediate consumer detriment,” Mr Kell said.
“There’s a smaller percentage where we think that is apparent,” he said.
Our sister publication ifa is live blogging from the Royal Commission, you can follow here.
katarina.taurian@momentummedia.com.au
If 90% don’t comply with Best Interest Duty, and yet there is no detrimental effect on consumers, then there is something wrong with the Best Interest Duty legislation and/or the way it is being interpreted by ASIC. This over-regulation is pushing up the cost of compliance and therefore the price that consumers are paying for advice.
Interesting ASIC’s focus and admitted attack on SMSF advice providers, and yet they have identified issues and ‘fee for no service’ with vertically integrated industry fund First State, and yet refuse to take any action.
When considering the number of members of that fund let alone all other Industry Super Australia (ISA) funds, one has to ask the question, why?
Kell fronted the RC this week, and yet was not pushed hard or placed under any real scrutiny for his complete lack of action and total disregard for this area of identified wrong doing.
I would also suggest that ASIC’s figures are purposely misleading (as the RC have accused CBA and AMP to date), as the ‘property spruikers’ as well as those who set up SMSF’s for early release scams were counted in their figures. They can hardly be considered with the rest of the professionals who do the right thing.
It is apparent Kell has an agenda, and this RC is helping that along.
ASIC seems to have a lower professional standards than the people they regulate. They know the statements made are not clear and are misleading. It is time they live to the standard they expect from others in our industry.
Really makes me want to be part of this brilliant advice regime (not!!).
We’re onto a winner….
ASIC, give us details now and not BS headlines of minor technical issues.
If most of these so called breaches have not harmed the clients, what are the nature of the breaches ?
Are they Accountants still not providing AFSL advice properly without file note, SoA’s etc ?
Are they minor issues of not comparing 10 different alternative strategies – which seems to be the scenario ASIC wants for best interest duty.
Given any industry or profession could be picked to pieces with the fine details of law, it’s not real without the details.
How about 90% fail rate of drivers, eg. speeding 1 km over limit, not fully stopping at stop signs, not indicating off round abouts, driving too close to car in front is tailgating, not locking your car if 3m away, also leaving keys in ignition, using your horn to say goodbye, not keeping in left lane if going slow, etc compared to more serious issues like Mobile Phone Use.
Context of Reality please ASIC.
So the heading scares people in thinking SMSF are bad,, then at the bottom of the article they state the actions taking probably are in detrimental to the client. This just continues on the unjust government attack on SMSF for no other reason than the big retail/industry funds are losing money to SMSF’s
Gross misrepresentation from ASIC but no remediation required? 90% of those reviewed? If 9 out 10 were flawed where are the complaints?
Dodgy inappropriate advice, self interest in product flogging no doubt exists but 90% of Adviser’s have nothing to do with it. How do you think they retain clients for years, including client friend and families? It doesn’t happen from 90% of the time not doing the right thing.
This probably reflects more on poor law than advisers.
Hardly great news, but what is the regulator going to do to remedy the situation?
I see no sense in conducting surveys, publishing results then doing nothing.
ASIC is just as culpable as the advisers & their dealer groups
It seems to me that ASIC is a sleep at the helm here. 9 out of 10 SMSF advisers fail the best interest duty, there is a lack of documentation & all the regulator is doing firing warning shots!!!
It is just not good enough. For far too long regulatory bodies have been reactive. The softly softly approach does not work.
If ASIC has the evidence then prosecute. If not then go away.
90% of advisers fail to comply with law, yet there are no prosecutions.
I am not sure who is worse, the adviser or the regulator
I would say the regulator as they haven’t explained what they are looking for. Best Interest is at best a subjective assessment in which two people can form completely different views. ASIC are looking for way’s to boost their power base and whilst I believe a lot of SMSF advice is poor 90% is beyond a figure that would be expected unless people were aiming in the wrong direction and didn’t know what was expected (ie) the rules change with the benefit of hindsight.
ASIC / Peter Kell submitted this in writing to the royal commission. In their response to Q8 (page 14) they are very clear that the target is on horizontally integrated businesses advising lower balance clients to open SMSF’s to purchase property using limited recourse borrowing, in particular when that is the funds only investment and the horizontally integrated business may receive other “conflicted” remuneration in the form of property or lending commissions.
https://financialservices.royalcommission.gov.au/public-hearings/Documents/exhibits-2018/16-april/Exhibit-2-1.pdf