The Australian Securities and Investments Commission (ASIC) has accepted an enforceable undertaking (EU) offered by Financial Index Australia Pty Ltd (FIA).
The EU comes after ASIC found FIA had moved clients from their existing product into a more expensive FIA branded product, without sufficient explanation or justification.
The EU was offered following surveillance by ASIC, which looked at a number of FIA’s policies, procedures and client advice files. Through its surveillance, ASIC identified a number of concerns in relation to FIA’s financial advice business, including out-of-date policies and procedures, deficiencies in the file audit process, and insufficient information being provided to clients who were being moved into new products.
ASIC Deputy Chairman Peter Kell expressed concern that FIA did not have appropriate processes and monitoring in place, and was not managing conflicts of interest adequately.
‘ASIC will intervene where it finds the quality of advice provided by advisers, and the supervision of those advisers by the licensee to be lacking,’ said Mr Kell.
Under the EU, FIA acknowledged that ASIC’s concerns were reasonable and has agreed to:
- engage an independent expert to review client files, and
- remediate clients where appropriate.
ASIC acknowledges the cooperation of FIA in connection with the surveillance.
The surveillance conducted by ASIC found:
- a number of FIA’s policies and procedures were deficient and referred to old sections of the Corporations Act 2001.
- FIA’s Adviser Incentive Scheme was likely to encourage representatives to switch clients from existing third party products to FIA’s own branded product.
- the majority of clients whose files were reviewed by ASIC were moved from their existing third party product to a more expensive FIA branded product without adequate justification or explanation as to why the move was likely to leave the client in a better position.
- where justification for the recommended switch from a third party product to a FIA branded product was provided in the client’s statement of advice, it was in the form of a generic statement that the FIA branded product would achieve higher long-term returns.
- in the majority of cases where clients were recommended to switch from their existing third party product to a FIA branded product, the SOAs provided to clients did not include the additional information required when an adviser recommends replacing one product with another.
- for clients who were recommended to switch from their existing third party product to a FIA branded product, there was a lack of detailed enquiries into the client’s personal circumstances, financial needs and objectives.
- FIA’s file audit process was deficient.
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