On 16 December 2022, ASIC published 22-366 MR ASIC bans two Gold Coast based financial service providers and cancels the AFS licence of National Advice Solutions. This outcome is part of ASIC’s ongoing efforts to improve standards across the financial advice industry.
ASIC noted the primary failing of the licensee was its failure to ensure that the financial services it offered were provided efficiently, honestly, and fairly, specifically citing the use of ‘layered advice’. Layered advice occurs when the advice provider separates the advice into pre-determined topics, regardless of the client personal circumstances, goals, and advice requirements.
Using the ‘layered advice’ strategy, clients would typically receive advice about their superannuation first, scoping out insurance even if the clients were paying insurance premiums from their existing superannuation account. Insurance needs are then addressed at a later date, and potentially estate planning in a separate meeting after that.
The ‘layered advice’ strategy was found to actively impede financial advisers from complying with financial services laws because it results in expensive and templated advice that is not tailored to their personal circumstances. ASIC found that it was inappropriate to separate out superannuation and insurance advice for products that are so intrinsically linked that advice regarding both areas cannot be delivered exclusively.
Responsible Manager Failings
ASIC found that National Advice Solutions failed to adequately monitor and supervise their authorised representatives and failed to maintain competence to provide the financial services stipulated in their licence. The two financial service providers reprimanded in this action (Ms Glasby and Mr Carcallas) were members of the Compliance Committee and were Responsible Managers for the licence.
It is expected that responsible managers will assess strategies and policies used within the business to ensure that they are consistent with the obligations of the licence they represent. ASIC found that Ms Glasby and Mr Carcallas must take some responsibility for the systemic failings that resulted from the use of ‘layered advice’.
Mr Carcallas was additionally sanctioned because he provided layered advice to clients. ASIC found that Mr Carcallas:
- did not act in the best interest of clients
- provided advice that was inappropriate, and
- prioritised his interest (or those of the AFS licensee) over the interest of the client.
ASIC found that the advice provided was templated, inappropriately scoped, did not identify or consider the specific circumstances of the client when preparing his advice, and failed to include all costs associated with implementing the recommendations.
Not the first instance of ‘Layered Advice’ Action by ASIC
In 2020, ASIC cancelled Smart Solutions Group (Aust) Pty Ltd’s licence for adopting a ‘layered advice’ strategy stating that the adviser “used a ‘layered advice’ strategy, whereby he provided his clients with a superannuation statement of advice first, followed by an insurance statement of advice a few weeks later…The review also found that Mr Shapter issued multiple statements of advice and provided inappropriate switching advice to generate fees for himself. (20-020MR, 2020)”
In this case, ASIC determined that the process was confusing for clients and resulted in lost insurance or policy exemptions in some cases.
- The practice of ‘layered advice’ is under scrutiny by ASIC. If elements of advice are being segmented rather than the client’s situation being looked at in its entirety, there is the potential for the advice to be deemed inappropriate.
- Responsible Managers are expected to assess business operations to ensure that they are consistent with the obligations of the licensee.
- The licensee must monitor and supervise their authorised representatives and maintain competence to provide the financial services stipulated in their AFS licence.
For More Information
GRC Essentials can help
If you require any assistance, we can offer training for your personnel or a review of your compliance documents. Please don’t hesitate to contact us if you have any questions or if we can help you with any of your compliance matters.
NOTE: if you do not wish to receive further technical updates from GRC Essentials Pty Ltd, please respond to this email requesting to be removed from the mailing list.