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Will ASIC also find this an issue in other regulated products streams as well

Source- Investor Daily- Staff Reporter.


An ASIC review of the 21st to 50th biggest AFS licensees has found the majority of licensees’ income comes from product issuers, which may give rise to conflicts of interest.

ASIC Report 362 Review of financial advice industry practice: Phase 2 found that the management of conflicts of interest remains a “critical risk that requires ongoing attention from licensees”.

Product concentration also represents a “significant risk” for licensees, according to the report.

“Any product failure will have a much greater impact on licensees whose product recommendations are concentrated into a small number of products, not only in relation to client losses but also in relation to the licensees’ income if a large proportion of their income is from commissions,” said the report.

While licensees employ different methods to manage risks, some deploy “significantly more resources than others to risk management”.

The most reported ‘high-impact’ risk to business identified by the top 21 to 50 licensees was non-compliance with legislation – whereas the most reported ‘high-probability’ risk was the provision of inappropriate advice.

“Staff retention was another risk that featured prominently as both a high-impact and a high-probability risk,” said the report.

Report 362 is a follow-up on the September 2011Report 251, which was based on the top 20 financial advice firms.

ASIC recently concluded visits to 24 financial advice licensees who have only recently obtained their AFS licence.

Over the next year, the regulator plans to visit other newly licensed financial advice businesses – as well as “around 60” established AFS licensees to discuss implementation of the FOFA reforms.


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