AFA puts ASIC on notice over double standards

Recent responses to questions on notice from Coalition senator Amanda Stoker revealed ASIC did not plan to take any enforcement action as a result of its Report 639 on the quality of super advice, which found just 49 per cent of super fund advice files reviewed were fully compliant with the best interests duty and other obligations.

The regulator had said this was because, unlike its earlier Report 413 into risk advice that led to the LIF reforms, it now distinguished between breaches that were likely to cause financial detriment to a consumer and those that were not.

AFA general manager of policy and professionalism Phil Anderson told ifa the association had engaged with the regulator to ensure it adopted “a consistent approach” that took account of these new reporting processes during its review of LIF commissions, scheduled to take place this year.

“Our view on ASIC and Report 639 is that they need to apply a consistent approach when they undertake the LIF review this year and if that review generates a result similar to the 49 per cent pass rate in 639, then they should express similar views as opposed to how they responded in 2014 to ASIC report 413,” Mr Anderson said. 

“In our view ASIC Report 639 sets a benchmark for what is an acceptable outcome from the LIF review. We have made these points in our discussions with ASIC over the last year.”

Mr Anderson suggested the regulator’s recent comments left open the possibility that the reforms may not have been necessary, had advice files in Report 413 been judged by today’s standards.

“It was known that ASIC did not look at client detriment when they did Report 413, and therefore with an overall fail rate of 37 per cent, the amount of detriment would have been much less,” he said.

In Report 639, while 51 per cent of super advice files had been non-compliant to some degree, just 15 per cent had been found by ASIC to be non-compliant to such a degree that they could cause consumer detriment.

However, Mr Anderson said the experience of AFA members did not suggest the regulator commonly made this distinction when auditing advice files as part of its ordinary surveillance.

“It is not our experience or expectation that ASIC would largely disregard procedural, disclosure or record keeping non-compliance,” he said.

“This is a large part of what has come out of Report 515 [on institutional oversight of advisers] and compliance with the best interests duty safe harbour and the extensive intervention that arose as a result of that. This report drove substantial changes in the processes of the large institutionally owned licensees.”