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Dr. Mark Sinclair
Dr. Mark Sinclair, Mentor Education

ASIC releases report highlighting concerns over poor background checks

5 August 2013

ASIC has released a report based on a questionnaire sent to the top 21 to 50 Australian Financial Services Licensees (AFSLs) expressing concerns about the number of some of the largest financial advice groups being owned by product issuers. 

The report titled: Review of financial advice industry practice: Phase 2 has found many mid-tier licensees are not checking the credentials of advisers, posing a risk to both businesses and consumers. ASIC has stated that, “we observed that around half the licensees were either wholly owned or majority owned by a product issuer.” They also observed that,”the majority of licensees’ income was received from product issuers. This may give rise to both potential and actual conflicts of interest, especially where advisers  recommend products issued by related parties.”

Commenting on further problems associated with a lack of vigilence checking credentials ASIC has said that it is a significant shortcoming that allows for, “bad apples to move between licensees, thereby transferring the risk of their poor advice.”

In 2011 ASIC released Phase 1 of the report, based on a survey sent to the 20 largest dealer groups in the country. The results of the Phase 1 indicated that the most reported high-impact risk to the business identified was non-compliance with legislation, whereas the most reported
high-probability risk in Phase 2  was the provision of inappropriate advice.

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