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3.3 Financial advice

The financial advice sector includes AFS licensees and their representatives who provide personal advice to retail clients on financial products, general advice, and personal advice to wholesale clients.

In 2019–20, ASIC focused on improving the quality of financial advice using our full range of regulatory tools, including enforcement action, banning advisers engaging in misconduct, remediating consumers, and oversight of licensee compliance.

Charging clients without providing advice

ASIC is monitoring remediation programs by six of Australia’s largest banking and financial services institutions in relation to loss or detriment suffered by consumers due to non-compliant advice or FFNS conduct.

AMP, ANZ, CBA, Macquarie, NAB and Westpac established review and remediation programs to compensate affected customers. Compensation paid or offered by the six listed financial services institutions to customers who suffered loss or detriment totalled $1.05 billion as at 30 June 2020.

FFNS misconduct was examined in some detail by the Royal Commission and is subject to ongoing ASIC regulatory responses, including investigations and enforcement action.

Compliance with financial advice fee disclosure obligations

In November 2019, we reported on our compliance assessment of fee disclosure statements (FDSs) and renewal notices (RNs) issued by 30 randomly sampled AFS licensees and their representatives: Report 636 Compliance with fee disclosure statement and renewal notice obligations (REP 636).

We analysed 1,496 FDSs and 373 RNs, as well as information about licensees’ disclosure policies and procedures, and commissioned a compliance consultant to review 176 FDSs in detail to establish whether their contents complied with legal requirements.

We found that consumers receiving financial advice could be at risk of receiving wrong information about advice fees or, in some cases, being charged fees after ongoing fee arrangements have terminated.

Our review revealed widespread non-compliance across the sample of AFS licensees and their representatives, suggesting that failure to comply with FDS and RN obligations may be an industry-wide problem. REP 636 therefore included practical tips on how industry can comply with these obligations.

Advice in superannuation

In December 2019, we released the results of our review of the ways in which superannuation funds provide advice to members and the quality of personal advice received by members of the funds: Report 639 Financial advice by superannuation funds (REP 639).

We surveyed 25 superannuation funds and examined personal advice provided to members of 21 of those funds. Overall, we found that 15% of the files indicated that a member was at risk of suffering some financial or non-financial detriment as a result of following the advice provided. In these cases, we contacted the licensee, making clear our expectation that they review the advice and, where required, remediate affected members.

To help superannuation trustees continue to improve the advice services they offer fund members, we included practical tips in REP 639 for trustees, advice licensees and advice providers.

Adviser bannings

ASIC takes administrative action, such as banning individual advisers, to protect investors and consumers and to deter misconduct. This year, ASIC’s Financial Advisers team banned 22 advisers from providing financial services. Bans imposed included the following.

Peter Goudie: In July 2019, ASIC banned Mr Goudie from providing financial services for four years. ASIC found that Mr Goudie failed to comply with financial services laws, including the requirement to comply with the best interests duty and to prioritise his clients’ interests. When providing personal advice, Mr Goudie did not adequately identify his clients’ objectives, financial situation and needs, or investigate whether the products he was recommending would meet their needs. Mr Goudie also failed to give a number of his clients a Statement of Advice. In all circumstances where Mr Goudie’s advice was not in the best interests of his clients, it was found that he gave priority to generating fees and commissions for himself.

Sean Philip Lewis: In April 2020, ASIC banned Mr Lewis from providing financial services for five years. ASIC found that Mr Lewis failed to comply with financial services law, including by failing to provide advice that was in the best interests of his clients and failing to provide advice appropriate for his clients’ objectives. Mr Lewis advised most of his clients to use a limited recourse borrowing arrangement to fund the purchase of real property through an SMSF but did not professionally and independently assess whether using an SMSF and borrowed funds to invest in property was an appropriate strategy for these clients.

Non-lodging advice licensees

AFS licensees must comply with their financial reporting requirements. Financial statements and audit reports provide important information to ASIC and the market. Timely lodgement of financial statements and audit reports with ASIC demonstrates an AFS licensee’s capacity to comply with financial services law.

In 2019–20, we followed up with 277 advice licensees who had failed to lodge their annual financial statements and audit reports.

Of these, we suspended one AFS licence and cancelled seven AFS licences, including:

  • cancelling the AFS licence of RVM Capital Pty Ltd on 21 January 2020 for failing to lodge its annual financial statements and auditors reports for three consecutive years
  • cancelling the AFS licence of Personal Risk Management Pty Ltd on 21 May 2020 for failing to lodge its annual financial statement and auditors reports for three consecutive years.

Twenty-four licensees voluntarily cancelled their licence as a result of our monitoring.