Is the FSCP applying a lighter touch than ASIC?
Sanctions handed down by the Financial Services and Credit Panel against an adviser over so-called layered advice appear to be lighter than the approach previously adopted by the Australian Securities and Investments Commission (ASIC).
In what represents the third decision handed down by the panel, the unnamed adviser has been ordered to have the next 20 pieces of advice subject to independent audit at his own cost.
But, according to Capital Advisory director, Michael Miller, this appears to fall short of the sort of action which has previously been imposed by ASIC.
Miller cited ASIC penalties imposed in 2020. 2022 and this year involving layered advice which he said had resulted in bans and license cancellations.
“The panel in relation to Mr X found that limited scope insurance advice was provided. Some of the issues highlighted were that:
- Limited information was collected about the client’s debts and expenses;
- The advice lacked explanation for the basis of the insurance covers recommended;
- The advice relied on “generic, unsubstantiated reasons to support the recommendations for the replacement insurance products”;
- All three clients appeared to be underinsured as a result of the recommendations; and
- Required product replacement information for superannuation recommendations was not included.
“As a result the panel found that the adviser had failed to demonstrate the Code of Ethics’ values of trustworthiness and diligence, and breached standards 5 & 6 of the Code of Ethics.
“The sanction that the panel applied in this case was similar to that of the second FSCP panel decision. The panel has required that an independent compliance professional audit the next 10 instances of insurance advice and the next 10 instances of superannuation advice provided by the adviser, and submit reports to the AFSL and ASIC,” Miller’s analysis said.
“What is interesting about this panel decision is that in the past ASIC has applied bans to advisers and responsible managers, and cancelled AFSLs for the use of a layered advice strategy on four separate occasions”
Miller then noted that it is within the powers of a sitting panel to make an order that suspends or prohibits an adviser’s registration (RG 263.31).
He said the limited information published by the panel made it difficult to know what the difference may have been, but the decision summary described the finding being in relation to three pieces of advice given to clients.
“Each of the four actions ASIC had itself applied indicated that the layered advice strategy was applied as a business rule to all clients of the individual/AFSL, so the difference in this case may have been that it was found to have been a case of inappropriate scoping for a few clients, rather than applied to all clients of the individual/practice,” Miller said.
It’s impossible to know if FSCP is more lenient than ASIC based purely on the reported use of “layered advice”.
“Layered advice” is a term fabricated by ASIC, that has no clear definition or legal status. As with “balanced funds” it is impossible to make any sort of meaningful comparison between different situations, based on that label.
The nature of the substandard advice and the level of client harm may have been completely different in the ASIC vs FSCP cases.
What is wrong with the outcome, why does the axe need to fall each time an adviser is pulled up.
It is a corrective action that should have been picked up by internal audits,
but the outcome keeps an adviser in the industry and improve his processes and his client continue to have advice provided.
Under insurance is not always the adviser’s fault, it can be client directed. that should be in the file notes.
It is not like Mr X stole money or ripped off his clients.
I think this action appropriate to fault,
should Mr X. be caught again then that is a different matter.
If you look at the issues highlighted by the FSCP it looks exactly like the Barefoot investors insurance “advice.” But that is OK because its published in a book.
How qualified are the FSCP to sit in judgement?
None of you get it, that’s obvious !
The legal requirements for recommending insurance or superannuation start with the adviser having a “reasonable basis” for any recommendation.
The following applies whether its new or replacement covers.
Why would anyone not know that a full comparison of current superannuation replacement would require the investigation of;
(a) What changes should or could be made to the clients current investment portfolio with the current fund.
(b)costs associated with any replacement,
(c) Current advantages and disadvantages for recommending change
(d) how any portfolio recommendation would assist a client’s future goals.
(e) Why is the recommendation appropriate and in the client’s “best interests”.
None of this is rocket science, if you follow the processes that are required by all advisers by law !