In monitoring the financial planning industry, ASIC will direct most of its efforts this year to scrutinising aggregator licensees, the quality of advice, advice relating to structured products and the use of managed discretionary accounts (MDAs)
"We want to flag to the financial advice industry the types of issues we will be looking at in 2011. By drawing attention to these issues we hope to help licensees avoid pitfalls and ensure quality financial advice is being provided to consumers," ASIC commissioner Greg Medcraft said.
"Where consumers have received, or are at risk of receiving, inappropriate advice we will step in and take tough regulatory action. Poor quality advice cannot be tolerated," he said.
"It is not just the individual client that suffers loss, but the reputation of the industry as a whole is damaged as consumers lose confidence in the advice process."
ASIC said if it has concerns about the appropriateness of advice provided to clients then it will review client advice files or require the licensee or an external auditor to audit the quality of advice provided.
ASIC will also keep an eye on aggregators of planning businesses.
"In recent years, a number of licensees have sought to rapidly grow their business by acquiring other financial advice businesses," the regulator said.
"Concerns had been raised that some of these aggregators were not properly resourced and funded and as a consequence might not be meeting their licence obligations."
Characteristics of businesses that ASIC will take a closer look at include licensees who operate a one size fits all business model, who have inadequate or poor quality compliance resources, who have a poorly resourced and inadequate dispute resolution process and who fail to keep proper records.
The increasing supply of structured products has also been a matter of concern for the regulator.
"In the last 18 months we have seen a proliferation of complex products. A number of these products are highly risky and unsuitable for many consumers," ASIC said.
"While we will be looking at complex products across the board we will be focusing in particular on capital guaranteed products."
ASIC will be conducting a health check on structured capital protected and guaranteed products, particularly where these products require the client to borrow up to 100 per cent of the investment amount via a non-recourse loan.
Finally, the regulator will assess the use of MDAs.
"There has been a spike in the use of MDA's in recent years, with MDAs becoming a common alternative to managed funds. While the use of MDAs might be appropriate for some clients, we are concerned there is real potential for their misuse," ASIC said.
"In particular, when we look at MDAs in the coming months we will be looking at the use of higher risk strategies such as gearing and clients being placed into conflicted products."
