Federal Court declares Melbourne licensee breached FOFA laws

For the first time we get a read on how the Future of Financial Advice (FOFA) reforms will be interpreted by the courts.

ASIC says the Federal Court has found that Melbourne-based financial advice firm NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG) breached the best interests obligations of the Corporations Act introduced under the Future of Financial Advice (FOFA) reforms.

This is the first finding of liability against a licensee for a breach of the FOFA reforms.

This matter relates to financial advice provided by NSG advisers on eight specific occasions between July 2013 and August 2015. On these occasions, clients were sold insurance and/or advised to rollover superannuation accounts that committed them to costly, unsuitable, and unnecessary financial arrangements.

NSG consented to the making of declarations against it and after a hearing on 30 March 2017 the Court was satisfied that declarations ought to be made.

The Court found that NSG’s representatives:

  • breached s 961B of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that complied with the best interests obligations; and
  • breached s 961G of the Corporations Act by failing to take reasonable steps to ensure that they provided advice that was appropriate to its clients.

Those breaches amounted to a contravention by NSG of s 961L of the Corporations Act, which provides that a financial services licensee must ensure its representatives are compliant with the above sections of the Act.

The Court made the declarations based on the following deficiencies in NSG’s processes and procedures:

  • NSG’s new client advice process was insufficient to ensure that all necessary information was obtained from, and given to, the client;
  • NSG’s training on legal and regulatory obligations was insufficient to ensure clients received advice which was in their best interests;
  • NSG did not routinely monitor its representatives nor identify deficiencies in the knowledge or skills of individual representatives;
  • NSG did not conduct regular or substantive performance reviews of its representatives;
  • NSG’s compliance policies were inadequate, and did not address its representatives’ legal or regulatory duties, and in any event, were not followed or enforced by NSG;
  • there was an absence of  regular internal audits, and the external audits conducted identified issues which were not adequately addressed nor recommended changes implemented; and
  • NSG had a “commission only” remuneration model, which meant that representatives would only be compensated by way of commission for sales of life insurance products and superannuation rollovers.

ASIC Deputy Chairman Peter Kell said, “This finding, the first of its kind, provides guidance to the industry about what is required of licensees to ensure representatives comply with their obligations to act in the best interests of clients and provide advice that is appropriate”.

ASIC has sought orders that NSG pay pecuniary penalties in relation to the declarations made. A date for the hearing on penalty will be fixed by the Court.

Background

On 3 June 2016, ASIC commenced proceedings against NSG in the Federal Court (refer: 16-187MR).

Separately ASIC announced:

ASIC has banned Mr Adrian Chenh and Mr Bill El-Helou from providing financial services for a period of five years each following an ASIC investigation.

ASIC’s investigation found that Mr Chenh and Mr El-Helou provided advice to clients that was in breach of the best interests duty introduced under the Future of Financial Advice (FOFA) reforms.

ASIC found that Mr Chenh and Mr El-Helou had:

  • failed to act in the best interests of clients in that the advice provided did not leave them in a better position;
  • failed to provide advice that was appropriate to the clients; and
  • failed to provide financial services guides, product disclosure statements and statements of advice.

An additional finding was made that Mr El-Helou was not adequately trained, or not competent, to provide financial services.

ASIC deputy Chairman Peter Kell said, ‘Financial advisers must act in the best interests of their clients and provide advice that is appropriate. ASIC is committed to raising standards in the financial advice industry.’

Mr Chenh and Mr El-Helou both have a right to appeal to the Administrative Appeals Tribunal for a review of ASIC’s decisions. Mr Chenh has exercised his right of appeal and filed an application for review on 21 March 2017.

Background

ASIC has commenced proceedings against NSG Services Pty Ltd (formerly National Sterling Group Pty Ltd) (NSG) for breaches of the “best interests obligations” contained in the Corporations Act, and is seeking declarations of breaches and financial penalties (refer: 16-187MR).  A hearing on liability occurred on 30 March 2017.

Both Mr Chenh and Mr El-Helou, previously representatives at NSG, gave financial product advice, particularly in relation to superannuation and insurance.

A disconnect between the growth objectives and asset allocation of SMSF trustees

Self-managed superannuation fund (SMSF) trustees have high growth expectations for the next 12 months yet as many as 55 per cent have moved to a more defensive asset allocation amid continuing market volatility, according to AMP Capital.

Statistics from AMP Capital’s latest Black Sky Report show that while SMSF trustees expect a 10.9 per cent return on their portfolio this year (6 per cent capital and 4.9 per cent income), only 18 per cent of trustees have made changes to position their portfolio for growth.  This is, however, an increase of five percentage points from 2015.

Further to this, nearly half of SMSF trustees surveyed for the report say their aim is to have a fully diversified portfolio yet more than 50 per cent of their portfolio is invested in just one investment type outside of managed funds.

AMP Capital Head of Self-Directed Wealth and SMSF Tim Keegan said: “If trustees continue to be exposed to significant portfolio concentration risk and remain in more defensive assets without seeking financial advice, they may struggle to achieve their retirement goals.”

AMP Capital’s Black Sky Report is developed each year to provide a snapshot of trustee investment trends.  It also helps to arm financial advisers with insight and knowledge of where SMSF trustees are looking for specific advice.

The 2017 report has identified the biggest investment challenges for SMSF trustees as market volatility (according to 18 per cent of trustees surveyed), investment selection (11 per cent) and regulatory changes (10 per cent).

Mr Keegan said: “It’s clear that many SMSF trustees need help especially around portfolio construction and understanding the regulatory changes that are coming into play.  With nearly 60 per cent of SMSF trustees remaining open to using the expertise of a financial adviser, it’s clear this is a huge opportunity for advisers to tap into.”

The research also revealed that SMSF trustees continue to find managed funds attractive, with 47 per cent each investing approximately $280,000 in them.  Thirty per cent of SMSF trustees made their most recent managed fund investment after receiving advice from their financial planner.

Mr Keegan said: “There is an increasing appetite among SMSF trustees to invest in Australian equity funds, both active and passive.  Advisers can be proactive in recommending high-quality unlisted managed funds as well as introducing trustees to the increasing range of active exchange traded funds that are now available on the market.”

Active ETFs replicate managed fund strategies but are able to be bought and sold during the trading day like any share on the Australian Securities Exchange.  AMP Capital, in alliance with BetaShares, launched three active ETFs during 2016: the AMP Capital Dynamic Markets Fund, the AMP Capital Global Property Securities Fund and the AMP Capital Global Infrastructure Securities Fund.

According to Mr Keegan: “With expectations for growth at an all-time high, regulatory uncertainty at its peak and new products such as active ETFs becoming increasingly popular, there is more need than ever for SMSF investors to turn to financial advisers for support.”

For the third year in a row, AMP Capital has released the Black Sky Report, which uses research and data from leading research house Investment Trends to uncover the latest SMSF investor trends and insights.

The research is based on a quantitative online survey of nearly 800 AMP Capital SMSF investors conducted by Investment Trends.  The 2017 Black Sky Report can be downloaded here.

Westpac Affirms Wealth Management Focus

Westpac briefed the market yesterday on BT Financial Group, its wealth management division and reaffirmed that Wealth remains a strategic priority for the Group and it was continuing to invest to grow the business.

They showed this picture of financial products over the lifetime.

They argued that there will be strong growth in superannuation (faster than credit growth) and returns above the the Institutional Bank.  18.5% of Westpac Group customers have at least one BT Financial Group product although individual segment shares are small.

Finally, they reinforced their mobile strategy.

BT Financial Group (BTFG), Chief Executive, Brad Cooper, said the Group’s strategy was to provide superior service and that required looking after all of a customer’s financial needs throughout their life.

“Having a strong wealth and insurance operation is imperative to deliver this and BTFG has invested to transform its operations to help more Australians plan for their best financial futures,” he said.

Mr Cooper said while the industry is facing some near term headwinds from volatility and the uncertainty and costs associated with regulatory change, the longer term prospects are very positive. This is particularly true with superannuation balances expected to grow at around 8% per annum over the next decade.

“There is an increasing awareness of the need to fund retirement by Australians. Currently financial advice is only being accessed by one in five people. Add to that superannuation assets doubling to around $4 trillion over the next nine years and there is an obvious need to help more Australians into a dignified retirement,” he said.

“We have been improving our market leading wealth solutions across our business to better help customers through all life stages. Customers are rightly demanding more convenience, flexibility and the ability to be helped on their terms and we have reshaped our business and built the tools to meet these needs.

“This has included a new flexible advice model that offers everything from general and single-topic advice to full personal advice delivered when and where the customer wants, a partnership with Allianz to broaden our general insurance product set, and a new Super Check service that has helped 5,400 customers consolidate around $100 million of their retirement savings.

“Our investment in BT Panorama has created the most advanced Wealth platform in the country for both advisers and customers. For the first time, customers can view and transact seamlessly right across all their financial services in one place. This includes banking transactions, savings, credit cards, home loans, insurance, superannuation and investments.

“Within Panorama, customers can pick and choose from a wide range of investment options – from the simple, through to the more advanced – based on an individual’s objectives, financial situation and needs,” he said.

Mr Cooper also referenced BTFG’s life insurance business as a standout industry performer. Our customer focused strategy and prudent approach to risk has seen us avoid the more recent claims issues experienced by other life insurance participants.

“Life is an integral part of our product set and our business is strong,” he said.

“We have a disciplined approach to how our products are distributed, with most sold through an adviser, as we believe that life insurance is a complex product that needs either personal or general advice to support it.

“Additionally, our strong policy framework and transparent claims management processes has further strengthened our business. Our claims philosophy has consistently focused on customer wellbeing, with attention given to early intervention and rehabilitation so customers can return to work as quickly as possible. This approach has seen us routinely recognised by claimants, and the industry, as having the best Claims team,” he said.

Suncorp wealth arm placed on ‘negative watch’

From InvestorDaily.

Suncorp’s life insurance and superannuation division has been placed on ‘negative watch’ by S&P after the bank revealed it is considering “strategic alternatives” for the business, including divestment.

In a statement released yesterday, S&P Global Ratings said the strategic importance of Suncorp Life and Superannuation Limited (SLSL) has “weakened” following statements made in Suncorp’s annual result.

In last week’s annual result announcement, Suncorp revealed it is implementing an “optimisation program” for its Australian life insurance business as well as “exploring strategic alternatives”.

In response, S&P has lowered its financial strength and issuer credit ratings on SLSL to ‘A’ from ‘A+’, which it said “reflects a reduced level of uplift in the rating from group support”.

S&P said it has also placed Asteron Life’s ‘A+’ rating on watch with “negative implications, reflecting uncertainty as to the level of integration of the entity with the group”.

The research house said Asteron Life is now only “strategically important” for Suncorp – a downgrade from its previous “core status”.

“This downgrade follows Suncorp’s announcement that it has undertaken a strategic review of its Australian life insurance operations, which includes potential divestment of the operations. As such, we no longer consider SLSL as being highly unlikely to be sold,” said S&P.

“The weak operating performance of the life operations relative to group expectations has  triggered the group’s strategic review. This weaker performance also contributes to our assessment of slightly lower group support for SLSL compared with that for Asteron Life,” said S&P.

“We expect the continued strength in [Asteron Life]’s inforce premiums, operating experience and emergence of planned profit margins to support the financial contribution of the group’s New Zealand life operations, in contrast to SLSL’s weaker operating performance.”

House passes professional standards bill

From The Financial Standard.

Federal laws which will affect the future of the financial planning industry passed the House of Representatives last night.

The Corporations Amendment (Professional Standards of Financial Advisers) Bill, which was first introduced into Parliament in November 2016 by the Coalition, passed the House on the first sitting day of 2017.

Minister for Revenue and Financial Services Kelly O’Dwyer said the Bill comes in response to the actions of a minority of rogue financial advisers.

“Over time, repeated instances of inappropriate advice have led to a reduction in consumers’ trust in the financial advice industry,” O’Dwyer said during a reading of the Bill.

“Reduced trust acts as a barrier to consumers seeking financial advice, which is a poor outcome for both consumers and the industry.”

O’Dwyer recognised the majority of financial advisers have provided high-quality advice to their clients, adding that the measures debated will help to rebuild confidence in the industry.

Under the legislation, financial advisers will be required to hold a degree or a qualification equivalent to a degree, complete a professional year, pass an exam, and undertake continuous professional development.

A single uniform code of ethics will also set the ethical principles that advisers must comply with.

O’Dwyer hopes that the passing of the Bill means that more Australians will have the confidence to seek financial advice, noting that currently only one in five seek advice.

The new professional standards regime will commence on 1 January 2019, following successful passage through the Senate.

Labor’s last minute amendment

Prior to passing the House, Shadow Assistant Treasurer Andrew Leigh called on the government to apologise to victims of bad financial practice following their vote against Labor’s proposed financial advice measures.

“The house calls on current Liberal and National Party parliamentarians to apologise for the disregard their colleagues in the 43rd parliament showed for the many victims of bad practice in the financial advice sector when they voted against Labor’s Future of Financial Advice measures,” Leigh’s proposed amendment stated.

Leigh offered three additional amendments, drawing attention to the lack of trust consumers have in the financial services industry.

Speaking to Financial Standard this morning, head of policy and government relations for the FPA Benjamin Marshan said that while he feels positive about how the Bill passed the house, he is disappointed with Labor’s response, given that the industry is desperately seeking certainty.

“The amendments that the ALP proposed were trying to play games and show up the Government,” Marshan said.

“It’s disappointing that given that financial planners have been looking for certainty. Consumers are looking for increased trust and passing the Bill through unanimously shows that the ALP didn’t have any philosophical issues with the Bill.”

Marshan added that the FPA is looking forward to the Bill passing quickly through the Senate on Thursday.

“We’re encouraged by the commitment that the government is showing to the industry,” he said.

Labor’s amendment was defeated 75-68.

One in two Australian households expected to be retire ready

Fifty-three per cent of Australian households are expected to have enough for a comfortable retirement from their combined superannuation savings, personal assets and the Age Pension, according to the latest CommBank Retire Ready Index released today.

When the Age Pension is removed, the number of households that can afford a comfortable retirement reduces to 17 per cent, and to just six per cent when the calculations are based on superannuation only.

Linda Elkins, Executive General Manager Advice, Commonwealth Bank said: “The good news is that many Australians who may not currently be on track for a comfortable retirement are very close. A little bit of planning could see them reach the comfortable level.”

CommBank commissioned Rice Warner to prepare the report, which shows that many Australians are close to achieving the comfortable retirement standard defined by the Association of Superannuation Funds of Australia (ASFA). The report shows that while 53 per cent of Australian households are on track, a further 18 per cent are projected have 80 to 99 per cent of what they will need.

The overall results are mixed across cohorts and age groups, and highlight the growing importance of superannuation in helping Australians achieve a comfortable retirement.

Millennials will need to save harder for retirement than other cohorts due to their longer life expectancies. Superannuation will play an important role and will comprise, on average, 78 per cent of retirement assets for 25 year-olds working today.

“The CommBank Retire Ready Index shows how important superannuation will be for the long term financial well-being of young Australians. Many people do not become engaged with superannuation until later in their working lives, but taking a keener interest in superannuation now, consolidating accounts into one super fund and contributing a little more each week can help younger Australians stay on track for a comfortable retirement,” Ms Elkins said.

In the 60-64 year-old age group, couples are expected to be better off than singles but will have reduced retire readiness as they have not received the long term benefits of compulsory Superannuation Guarantee contributions. On the other hand, younger age groups are expected to have less in assets at retirement outside of superannuation when compared with their older counterparts.

“The report also shows that more men than women are retire ready. Women have longer life expectancies, and therefore need more assets to maintain a comfortable level of retirement. Women also generally have lower retirement savings due to career breaks during their child bearing years and lower average income levels throughout their working lives.”

Ms Elkins also said: “People who are approaching retirement could give their savings a boost by taking advantage of the current superannuation contribution caps before they are reduced on 1 July.”

“It is important that people of all ages understand how much they will need to save now to secure their financial futures.”

“To help Australians see how on track they are for a comfortable retirement, CommBank has developed a retirement calculator. This is a good first step to see how retire ready you are and is a useful resource to help you get on track to reach your goals for a comfortable retirement,” she said.

Bank platforms ‘squeezing’ fund managers

From InvestorDaily.

Too much fund manager value is being “eaten up” by the high administration service fees of the major platforms, argues the ASX.

Speaking to InvestorDaily, ASX senior manager for investment products Andrew Campion said the investment management value chain should be more aligned with the people who actually generate wealth for investors – fund managers.

“We feel that presently too much value is eaten up by administration services. It’s not the actual person or firm that’s generating wealth for the end client,” Mr Campion said.

“If you squeeze the fund manager they just have less money to spend on research and less money to incentivise their staff,” he said.

This conviction is reflected in the relatively low fee ASX charges fund managers for inclusion on the mFund settlement service: 1.4 basis points (bps), or 0.014 per cent.

“If you look on a PDS for a fund manager and you see their expense ratio is 70 bps, 1 per cent or 1.2 per cent – they might be getting far less when they’re on a platform. Sometimes less than half as much,” Mr Campion said.

Sometimes a fund manager using larger platforms can be “squeezed” down to a fee of as low as 15 basis points “even though their direct retail fee structure is 70-80 bps or 1 per cent”.

“When we talk to managers, they’re staggered that they get to keep all of their fees,” Mr Campion said.

“We don’t feel like having a website that you can log into and have statements generated should cost 100 bps.”

There are now 170 products available on the mFund settlement service, with total funds under management (FUM) amounting to $250 million (up from $110 million 12 months earlier).

The ASX recently received approval from ASIC to include longer-form PDS products on mFund, in addition to shorter-form PDS products.

Longer-form PDS products, which include hedge funds, make up 20 per cent of the approximately $300 billion Australian retail fund management sector and are likely to be attractive to the mostly self-directed investors who use mFund, Mr Campion said.

“Although it’s only 20 per cent of the overall pie, we think as these funds come onto the platform it will be much more than 20 per cent of the mFund business,” he said.

Of the total $250 million in FUM on mFund, 40 per cent of it is self-directed and 60 per cent comes through advised channels, Mr Campion said.

Eighty per cent of the users of mFund are SMSFs, he added.

High-net-worth investors embracing robo-advice

From Investor Daily.

Robo-advice platforms’ capacities are expected to continue growing in the coming year, according to Finovate, expanding their functionality to include broader wealth management functions and cater to high-net-worth customers.

The “myriad” financial needs facing Millennials, coupled with increasing longevity risk confronting older investors, has driven change in the robo-advice space, Finovate research analyst David Penn said, with the improving abilities of such services now extending beyond “traditional boundaries”.

“The growing capacity of robo-advisers to help manage other aspects of personal finance supports a more expansive view of wealth management and financial planning,” he said.

“This includes everything from health care planning, insurance, even real estate, education and leisure.”

As robo-advice becomes “both more sophisticated and more accepted”, high-net-worth investors are increasingly making use of these services to manage parts of their finances, Mr Penn said.

“Catering to high-net-worth clients, according to some, involves both greater technological sophistication on the part of robo-advisors as well as more extensive customer service,” he said.

“Specifically, high net worth clients may require access to more complex investment vehicles, including non-equity investments, as well as more advanced rebalancing and tax harvesting than the average investor.”

Fintech services designed to help high-net-worth individuals manage their wealth are already emerging on the market, Mr Penn said, adding that high-net-worth individuals already using these services had increased their investment from 5 per cent to 20 per cent in the last two years alone.

 

Only One In Four Australians Has a Financial Plan

One in two Australians don’t believe they’re doing enough to reach their wealth goals according to new research from MLC, but a boost in confidence and a financial plan may be the key to helping Aussies get on track. However only 1 in 4 had a financial plan within the last 5 years.

The latest MLC Wealth Sentiment Survey released today for the first time identifies the reasons why Australians believe they may not have done enough to reach their goals, finding that self-doubt ranks second to not earning enough money (50% compared with 32%). These two factors were nominated by respondents as more significant than being scared of risk or even spending more than they earn.

Lara Bourguignon, General Manager, Corporate Super, NAB, says the research captures the strong link between confidence and achieving financial goals.

“We often think that getting where we want to go with our money hinges on how much we earn, but self-doubt appears to be a major factor. If we doubt our abilities with our money, it makes sense that we would struggle to achieve our goals.”

Closely tied to the lagging confidence of Australians is the considerable number who do not have a plan to save and invest. Only one in four respondents reported having a financial plan, which MLC says may be a key reason many lack confidence in dealing with money and investments.

“The research highlights an important connection between planning and confidence in reaching financial goals. With so few people having a financial plan, we perhaps shouldn’t be surprised that Australians doubt themselves and don’t believe they have done enough to reach their wealth goals. Having a financial plan is crucial to feeling empowered and getting where you want to go with your money,” said Ms Bourguignon.

For the first time, the survey has also asked Australians to define “wealth”. On average, 33 per cent reported their definition as income, 29 per cent lifestyle wealth, and 24 per cent net worth. The most important aspects of lifestyle wealth were being debt free, having enough for emergencies, and being able to fund our desired lifestyles.

The MLC Wealth Sentiment Survey also identified that while a majority of Australians report a significant shortfall between their anticipated financial needs at retirement and their expected savings and investments, most do not factor their primary residence in calculating their wealth. If Australians included the family home in their wealth, most would have enough once they left the workforce. Despite this, only 11 per cent reported that they planned to sell the family home to fund their retirement.

MLC Quarter 3 Wealth Sentiment Survey – key findings:

    • One in two Australians don’t believe they have done enough to reach their wealth goals
    • The top reasons nominated are insufficient income and self-doubt
    • Australians on average estimate they will need about $818,000 in savings and investments to retire, but expect to retire with only $557,000 (excludes home equity), an average shortfall of $261,000
    • Women face a bigger retirement shortfall than men: $297,000 compared with $226,000
    • If Australians included the equity in their homes, they would have an additional $442,000 in wealth available for retirement
    • Only 11 per cent of respondents say they will sell their homes to fund retirement
    • Four in ten respondents said they can achieve their desired lifestyle on less than $100,000 per year

The MLC Quarterly Australian Wealth Sentiment Survey interviews more than 2,000 people each quarter. It aims to assess the investment environment by asking questions related to current financial situation, investment intentions, level of concern related to superannuation and other investments, change in life insurance, and distance to retirement and investment strategy.

REST’s ‘mobile first’ industry-first online super advice platform launched

From Australian FinTech.

REST Industry Super became the first Australian super fund to provide its 1.9 million members with ‘mobile first’ access to personalised financial advice with the launch of the REST Advice Online platform.

REST Advice Online is delivered on Midwinter’s next generation Advice Operating System (AdviceOS) and provides REST members with the ability to receive instant financial advice and make immediate changes to their super account from any mobile device.

The innovative new platform also provides live webchat and over-the-phone support from qualified advice specialists with REST. Importantly the offering is linked to the REST member’s account to enable secure straight-through processing so members can make changes to their super quickly and easily.

The digital advice offering leverages Midwinter’s Digital Advice technology which means that regardless of which method REST members choose to receive advice (phone based, web chat or self-service), it is delivered, recorded and processed from the same integrated advice system.

REST Industry Super CEO Damian Hill said that the new digital advice platform offers user friendly and convenient access to financial advice that is personalised to each member’s unique needs.

“For many Australians, investing can be a daunting task and superannuation, which is an important long-term investment, is no exception. REST Advice Online allows members to make an informed decision about how they’d like to invest their money and grow their retirement savings with confidence.

“Importantly it allows REST members to seek financial advice on their own terms in a way and at a time that best suits them – on their mobile device, via our website or over the phone.”

REST’s new Advice Online service is supported by bespoke technology enabling REST members to explore their options for simple advice related issues and receive an emailed statement of advice after being asked a series of questions and prompts about their circumstances.

Managing Director of Midwinter Julian Plummer said there is now a generation of members who don’t necessarily want the first point of advice contact to be a face to face pitch, especially if it is for simple strategies. “Members want to experience the value of advice digitally in a way that is non-threatening and is instantly accessible.

“For REST to be able to provide this digital advice at no additional charge to its members is a leap forward because they are meeting individuals where they typically spend a lot of their time – on their smart phone or device.”

Initially the new service will help members choose an appropriate investment option and will be expanded over time to encompass a range of advice options across more channels. Mr Hill said, “As custodians of Australians retirement savings we have an obligation to ensure our members are as financially prepared for retirement as possible – introducing REST Advice Online ensures we’re able to provide personalised financial advice at no additional charge to every one of our members.”