Licensees shouldn’t ‘incentivise’ good advice: ASIC

Following the royal commission’s request for more information following the second round of hearings, ASIC was asked to outline its stance on how licensees can "best incentivise the provision of good quality financial advice, including in situations where the best advice for a customer is not to change anything at all". 

In response, ASIC's submission stated: “If the financial advice industry had a true professional ethos then, in ASIC’s view, it ought not to be necessary to incentivise financial advisers to provide good quality advice."

But in order for good advice to be incentivised, the regulator highlighted that the provision of good quality advice must first be identifiable.

This would have to involve an “expert, objective review” of the advice being given, ASIC argued, with the “use of ‘customer satisfaction’ as a measure of the quality of advice given … likely to be deficient”.

“This is because financial advice consumers are typically not good judges of whether the advice they receive is actually good quality advice, given in their best interests, and may assess advice on other subjective criteria, such as the rapport they have with an adviser,” the submission said.

The review of advice could be conducted as part of a “routine compliance audit”. Once the provision of good advice had been identified, the licensee could then reward it.

“On the other hand, remuneration which operates to incentivise advisers to recommend any particular advice outcome, or any particular product, or to ‘switch’ clients between products, will tend to work against advice in the client’s best interests,” the submission said.

“ASIC’s position is that there should be no difference in the remuneration for advice that is in the client’s best interests, whether it be to recommend change or no change to an existing investment strategy.”

To read the full responses to the royal commission please visit: https://www.ifa.com.au/news/25505-royal-commission-round-two-responses-released