The corporate watchdog has slapped new licence conditions on Suncorp's life insurance advisory firm Guardian Advice, after it recruited advisers from failed firms.
In a revelation that has sparked calls for further reform of commission structures, the Australian Securities and Investments Commission said on Wednesday it had imposed the new conditions on Guardian after an investigation uncovered "deficiencies" in the advice it was giving to clients.
These included appointing advisers who had worked for companies that had their licences cancelled and failing to identify breaches by its staff.
"ASIC was also concerned the company [Guardian], which specialises in life insurance advice, was not complying with its general obligations as an [Australian Financial Services] licensee, including failing to properly supervise its authorised representatives," it said.
The action comes amid a crisis of confidence in the financial planning industry, following several Senate inquiries and a number of high-profile scandals involving inappropriate financial advice at some of Australia's most powerful financial institutions, including the Commonwealth Bank and Macquarie Group.
The life insurance sector was specifically put in the spotlight after an ASIC report in October found more than one-third of the advice consumers received failed to comply with the law.
The regulator said it began monitoring Guardian after the company hired former representatives of AAA Financial Intelligence and AAA Shares, which collapsed after having their licences cancelled by ASIC in February 2013.
The firms' licences were cancelled after a three-year investigation revealed repeated breaches of corporate law, including the need to ensure advisers were adequately trained to provide financial advice.
ASIC said it was concerned Guardian, which has 130,000 customers around Australia, had failed to properly monitor its representatives or meet record-keeping obligations.
The new licence conditions will require Guardian to appoint an ASIC-approved consultant, who will report back to the regulator over two years.
A Guardian Financial Planning (GFP) spokeswoman said it took the ASIC findings "very seriously".
"GFP accepts that it is appropriate that there is greater scrutiny of these industries," she said. "GFP is confident it can seize this opportunity to improve our business, including improvements in adviser recruitment, training and adviser audit processes."
ASIC deputy chairman Peter Kell said Guardian's failure to monitor advisers meant there was an "ongoing risk that unsuitable advice could be provided".
Gerard Brody, chief executive of the Consumer Action Law Centre, said the action by ASIC further highlighted the need to address the problem of up-front commissions in the industry, "which can directly contribute to the poor practices".
"ASIC's previous report made strong findings that where there was poor conduct, there were strong up-front commissions," he said.
"We really need urgent action to do something about standardising sales practices."
ASIC's investigation into the AAA firms found they adopted a business model that allowed them to increase cashflow only by increasing the number of advisers they hired.
It also found they failed to make sure advisers complied with the law when giving advice.
ASIC's review of the life insurance sector found that high up-front commissions correlated strongly with consumers receiving poor financial advice.
Its investigation into Guardian Advice was borne out of the review. Other investigations are understood to be ongoing.
Meanwhile, a senior executive at another of Suncorp's life insurance advice firms, Asteron Life, has resigned.
Suncorp confirmed the head of its adviser distribution at Asteron, Jordan Hawke, would leave the company at the end of January for personal reasons.Author: Georgia Wilkins
Source The Sydney Morning Herald
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