MGI Conference Aura Wealth Pty Ltd - PowerPoint Presentation

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MGI Conference

Aura Wealth Pty Ltd

ABN 34 122 486 935 AFSL 380552

AGENDA

Current regulatory landscape

FASEA Professional Standards

Education

Code of Ethics

ASIC Industry Funding Model

Accountants limited licence

Increasing the accountability of financial product issuers and distributors

ASIC

Report on conflicts in vertically integrated firms

ASIC Wealth Management Report

Best Interest Duty prosecutions

Advice solutions for MGI

Current regulatory landscape

Royal Commission into Misconduct in Banks, Superannuation and Insurance

FASEA Professional Standards – Education and Code of Ethics

ASIC Industry Funding Model

Case Law and prosecutions on Best Interests Duty

ASIC Reports – Report 499: Fees for no service; Report 562: Conflicts in Vertically Integrated Firms

Removal of license exemption for Accountants, replacement with Limited License and subsequent ASIC surveillance

FASEA – Professional Standards

Existing Advisers need to do a post graduate degree (AQF 8 or above) or bridging course

Need to comply with the Code of Ethics and appoint an independent body to monitor compliance

All financial advisers need to sit and pass an exam to continue providing advice

New Advisers must have an approved degree (AQF 7 and above) and do a supervision year

Limitations on who can use the term Financial Adviser

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2

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4

5

FASEA Professional Standards

Code of Ethics and compulsory monitoring

FASEA Professional Standards Timeline

Failure to meet the FASEA requirements by the due dates will mean that an individual will no longer be a financial adviser/planner and would be required to enter the industry as a new adviser.

ASIC Industry Funding Model

We estimate the fee per adviser would be approximately $850

Accountants limited licence

Aim

to ensure that financial products are correctly targeted and sold to the appropriate consumers. Where this has been breached, ASIC will have the power to intervene in the distribution of the product.

ASIC power

ASIC has the power to intervene in the distribution of a product where it believes there is significant risk of consumer detriment, including:

Requiring amendment of marketing and disclosure

Imposing consumer warnings and labelling changes

Restricting how a product is distributed

Banning products

Royal Commission concerns

Misconduct in the banking, superannuation and financial services industry:

Introduction of design and distribution obligations on issues and distributors

Product intervention power for ASIC

Obligations for the design and distribution of products

Issuers will be required to (for retail clients):

Identify target markets for their products

Select appropriate distribution channels

Periodically review arrangements

Implement controls

Accountability of financial product distributors –

new legislation coming

Source: Legal framework for the provision of financial advice and sale of financial products to Australian households, background paper 7, professor Pamela Hanrahan, April 2018.

FASEA will also aim to improve the quality of advice and ethical behaviour of advisers across the industry

ASIC concerns in big 5

that clients were receiving non-compliant advice

the financial position of these clients

How they manage conflict of interest of providing personal advice to retail clients and manufacturing financial products.

2 areas in where customer files ‘failed, the adviser:

Did not sufficiently research or consider the customer’s existing financial products; and/or

Based all judgements on the customer’s relevant circumstances.

Out of the client files reviewed

75% of advice was non-compliant

10% raised concern for the potential impact of the customers financial situation

Steps previously taken to reduce conflicts - FOFA reforms:

Ban on conflicted remuneration

Obligation to act in the best interest of clients

Opt-in obligation to renew ongoing fee agreements every 2 years

A requirement to provide an annual fee disclosure statement

Steps ASIC is taking to improve the quality of advice:

Improvements to monitoring and supervision

Improvements in advice processes

Banning advisers with serious compliance failings

Remediation where necessary

Deals with advice businesses that offer financial advice and also manufacture financial products

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Vertically integrated business models give risk to conflicts of interest

ASIC report: Conflicts in vertically integrated firms

Source: REPORT 562: Financial advice: Vertically integrated institutions and conflicts of interest

ASIC wealth management report

Compensation type

AMP

ANZ

CBA

NAB

Westpac

Compensation paid under the review and remediation framework developed as part of this project

$8,481,742

(1192 customers)

(11 advisers)

$3,036,164

(245 customers)

(9 advisers)

N/A$1,431,482(103 customers)(9 advisers)

$4,510,890(137 customers)(11 advisers)Compensation paid under previous or existing remediation processes$5,047,871(17 customers)(4 advisers)

$6,677,105(182 customers)(11 advisers)$6,575,952(501 customers)(12 advisers)$815,694(82 customers)

(3 advisers)$6,862,021(250 customers)(13 advisers)Compensation paid under complaints process$1,193,034(57 customers)(15 advisers)$1,530,804(127 customers)(23 advisers)

$1,091,748(27 customers)(11 advisers)$2,512,570(70 customers)(25 advisers)$1,632,802(44 customers)(14 advisers)Total compensation paid including under remediation and complaints$14,722,648(1266 customers)(24 advisers)

$11,244,073(554 customers)(29 advisers)$7,667,700(528 customers)(17 advisers)$4,759,746(255 customers)(26 advisers)$13,005,713(431 customers)(17 advisers)

Source: ASIC – Compensation update: Major financial advisory institutions continue refund programs for fees-for-no-service, May 2017 Compensation payment update – for failing to provide general or personal advice to customers while charging them ongoing advice fees

Civil penalty

Melbourne-based financial advice firm NSG Services Pty Ltd (currently named Golden Financial Group Pty Ltd) (NSG)

of $1 million

Who breached?

breaches of the best interests duty - clients were commonly sold insurance and advised to roll over superannuation accounts that committed them to costly, unsuitable and unnecessary financial arrangements

The breach

s961B

of the Act by failing to take reasonable steps to ensure that they provided advice that complied with the best interests obligations; and

s961G

of the Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients.

Legislation breached

Civil penalty of $1 million + $100,000 ASIC costs.

First civil penalty imposed on a financial services licensee for breaches of the best interests duty

Penalty

Who

What

Law

Penalty

Financial advice firm to pay

$1 million penalty for breach of

Best Interests Duty

Best Interest Duty prosecutions by ASIC

“This outcome makes clear to the industry the serious consequences of financial services licensees failing to comply with their FOFA obligations.  ASIC will continue to pursue licensees who fail to do so.”

ASIC deputy Chairman

ASIC

Advice solutions for MGI

Financial Planning

Establish SMSF

What type of advice do you provide?

Depending on what you currently and want to do in the future will determine the solution we can provide to you

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Super Investments

Super Contributions

Dual signing of advice to cover areas you do not want to do

Dual signing of advice to cover areas you do not want to do +

Referrals to other advisers to cover areas you don’t want to advise on

Internal services can provide additional services you don’t want to advise on