FSCP determinations grow, but offers little insight
Source Of News
Professional Planner – 29th February 2024 (https://www.professionalplanner.com.au/2024/02/fscp-determinations-grow-but-offers-little-insight)
Cleaning up the financial advice industry has led to far greater scrutiny of the advice being offered by financial advisers.
In fact, the Financial Services and Credit Panel has issued 13 determinations since May 2023, with more determinations expected to be announced this year.
Capitol Advisory director and financial adviser Michael Miller keeps a close watch on determinations. He believes that many of the decisions are the result of more stringent licensee reporting requirements to ASIC.
Previously an Australian financial services licensee may not have reported a breach because they considered it to be minor and of little individual impact, but the new breach reporting requirements have meant the reporting threshold is very low, he explains.
“Once these are reaching the FSCP, we’re seeing the panel apply either no or a minor sanction where they consider that the breach may have been more of an error than adviser misconduct,” he tells Professional Planner.
“When you consider the low reporting threshold and the low number of decisions, this suggests that overall conduct is very good.”
Some of the more recent decisions have looked at the involvement of cold-calling marketing organisations generating leads that have turned into poor-quality superannuation switching advice.
“These cases are often difficult to distinguish between whether the poor advice is because of the conduct of an individual adviser, or is more systemic in terms of how a particular practice is operating,” Miller says.
The FSCP is not able to make a finding or impose a sanction beyond the individual case it’s facing but has shown a willingness to require an audit of future advice that can be helpful in providing the information ASIC may require to address poor conduct that is related to a practice’s business model.
He notes that nearly all of the decisions to date have been anonymised, however, two decisions announced in December included the names of individual practitioners. “Sometimes a practitioner is named because a panel has chosen to do so, but there are circumstances when the panel rules require this to be done,” Miller says.
Joel Ronchi, Fourth Line CEO and former adviser doesn’t believe that the industry can connect the FSCP determinations with how financial advice is tracking in Australia more broadly.
Often, there isn’t enough detail in the determination to provide insight into exactly what has gone on, or what action the industry watchdog or a licensee has taken as a result of the determination.
Ronchi says almost 65 percent of the advice files reviewed are done on a pre-vet basis, this means the issues can be identified and fixed before they go to a client.
“Moreover, the issues we find are often around the execution of the advice creation process, and/or a lack of documented evidence, rather than delivering misleading conduct or poor advice,” he says.
This lack of evidence on the client file can be problematic if a complaint is made or the advice needs to be justified at a later date. Also, with the likely regulatory changes that will remove Statements of Advice, the compliance focus on the future will shift from the SOA to the advice creation process, and the evidence retained on file.
Ronchi believes that it would be more useful if the FSCP determinations provided more insight into the circumstances and what the outcomes were. For example, many of the determinations state that the adviser ‘contravened’ sections of the Corporations Act, and breached the Code of Ethics.
Ronchi says the FSCP determinations highlight the importance of advice oversight on how many issues could have been fixed if the issue was prevented by the licensee.
“The problem is that many licensees still have an advice oversight framework that is backward-looking, reactive, and based on a random sampling of files after the advice has already been provided by the client,” Ronchi says.
“In these cases, it’s too late – the advice horse has already bolted.”
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