CEO update compliance – May 2019

ASIC bans advisers for failure to act in client’s best interests (BID)

In April two advisers were banned due to failing to demonstrate that they had met best interests obligations when providing financial recommendations to their clients. At our advice days we have been reinforcing the importance of accurately recording client discussions, recording specific and measurable needs and objectives and having complete files in Xplan. In your advice documents you are then required to show how your recommendations – both strategy and product, tie back to the clients needs and objectives and will assist them in meeting these.

The two advisers who were banned were identified through an ASIC surveillance and random sampling of advice relating to its Wealth Management project that has targeted the four banks, Macquarie and AMP.

Gregory Foster (M3 AR) was found to have made assumptions about clients’ personal circumstances based on limited information rather than taking their circumstances into account. He recommended super and insurance products that were unsuitable and misrepresented the cost of implementing his advice.

Peter Chigwidden – consistently failed to document how he addressed his clients’ stated needs and objectives and failed to provide advice in their best interests. He recommended clients switch from existing products and services without considering whether the new products and services better met the clients’ needs or objectives and the cost impact to them. He did not adequately disclose the consequences of implementing his advice which left clients uninformed. On several other occasions he failed to provide statements or advice and records of advice or provided defective statements of advice and records of advice.

If you have any questions about whether your documentation is demonstrating that you are meeting BID, or how to improve your documentation of BID, contact Professional Standards.

Revised FSG to be released shortly

From time to time we are required to review and update our licensee FSG templates. In the coming weeks we will be releasing a revised template for each advice practice. Professional Standards will provide you with an FSG for review and we require you to confirm that there are no changes to your advice offering and charging methods. Once you have confirmed the accuracy of the FSG it will be approved for use. As with any FSG update you will be required to provide your updated FSG to all clients prior to providing them with any financial service.

Are you charging the right entity?

Advisers who providing advice to multiple entities including an SMSF need to ensure that your method of charging does not put you at risk. While this has been an area of focus for a while it has come under continued focus as a result of the Royal Commission.
Commissioner Hayne raised concerns with advisers charging advice fees to SMSFs for non-SMSF advice. This payment is considered in breach of the SIS Act and sole purpose test. If you do charge advice for multiple entities you should check that all advice fees are not coming from the SMSF. If you have any questions or concerns about this please contact Professional Standards.

Rise of complaints and importance of filenotes

Post the Royal Commission, we have observed an increase in client complaints. There is no common theme to the complaints received. One important thing to remember is that if you do receive a complaint it is your documentation that will be your best defence. Ensure that your client files are up to date and filenotes are an accurate reflection of your discussions.
Your filenotes should reflect what was discussed and not just provide an overview of the conversation. For example, a file note that shows:

  • Spoke with Jacinda and Clarke – they are familiar with risk and returns. We discussed the rational for holding a fund with a higher risk. We also discussed the characteristics of bond funds. They are comfortable with this.

will not be of great assistance in demonstrating that the client has an appreciation of risk and how it is utilised in their portfolio. A better file note would provide more detail of the discussion and not just the conclusion.

  • Spoke with Jacinda and Clarke – they are familiar with risk and returns having invested in diversified portfolios for over 15 years. They have held a mixture of direct equities and managed funds and they did experience losses in their holdings during the GFC. They did not cash and were comfortable to hold on to the majority of their investments until markets had corrected.
  • Jacinda and Clarke understand that to achieve higher potential growth normally will mean taking on more risk of loss and indicated that they were comfortable to do this in an effort to achieve their desired outcomes.
  • We discussed the rationale for holding a fund with a higher risk, which is…..
  • We also talked about the characteristics of bond funds – which are…..
  • They indicated that they are comfortable with this style of investing because…

Although both describe the same client interaction the second example shows in more detail what was said and why any conclusions were reached.
When making filenotes try and ensure that you have provided an appropriate level of detail and have your notes recorded in Xplan which is our source of truth for client files.


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