Imagine you're a director of an AFS advice licensee (and if
you are one, then you won't need to imagine). The manager of
compliance team has just sent you a report which identifies a
pattern of identical client complaints about undisclosed adviser
fees. You've received 14 complaints about this issue over the
last quarter, with the affected clients having dealt with three
The clients who have complained consistently allege that they
were offered 'free financial advice'. On taking up that
offer, each of the clients were advised to roll their super balance
over into a particular product. They subsequently noticed that
there were actually fees charged for the advice they received, paid
for out of their super.
Your compliance team, together with your dispute resolution
team, have been considering how best to resolve these complaints.
They aren't sure whether a refund of the advice fees in cash
would restore each client to the position they would have been in
had the fees not been deducted from their super balance.
There's also a question mark over the appropriateness of the
recommendations that the advisers made in each case, as each of the
14 clients was given the same advice. As such, you've offered
these clients a review of the advice given.
Having interviewed the advisers involved, your compliance team
thinks that the issue has likely affected a number of clients other
than those who have complained. What should you do next?
A good first step would be to consult ASIC's recently
Regulatory Guide 256 (RG 256), 'Client review and
remediation conducted by advice licensees.'
RG 256 follows on from ASIC's
Consultation Paper 247, and sets out its guidance on review and
remediation programs conducted by AFS licensees whose clients have
suffered loss or disadvantage as a result of misconduct or another
type of compliance failure. The guidance reflects a significant
amount of work that ASIC has done over recent years in supervising
review and remediation programs.
RG 256 deals primarily with remediation programs conducted by
licensees who provide personal advice to retail clients. However,
ASIC says that the principles set out in the guide may be capable
of more general application.
ASIC expects that AFS licensees will initiate a review and
remediation program when:
the licensee has identified a systemic issue (i.e. an issue
affecting multiple clients); and
clients affected by the issue have suffered loss or detriment
as a result.
What are the key benchmarks for a review and remediation
ASIC's guidance allows some flexibility around how a review
and remediation program should look. It can be tailored to the size
of the licensee and the scope of the issue (which means review and
remediation programs are not just for large-scale breaches).
While there is a measure of flexibility, the program should meet
a number of important benchmarks. These are:
adequate resourcing to ensure that the program is conducted in
an efficient and timely way (a benchmark which may prompt AFS
licensees to consider whether their existing resources are
sufficient to address any systemic issue that may arise);
the use of clearly defined principles to guide the program,
together with an appropriate governance structure, including
oversight by someone of appropriate seniority;
a consumer-focussed approach ensuring that the process is
straightforward, flexible and easy to understand for affected
consumers (see the guidance for some practical tips);
conducting the program free of charge to consumers;
providing access to EDR if affected consumers are not satisfied
with a decision reached through the program; and
keeping the 'efficiently, honestly and fairly'
obligations front of mind in the overall operation of the program,
including by operating transparently and avoiding conflicts of
Efficiently, honestly and fairly - and proactively
Unsurprisingly, the connection between effective review and
remediation programs and a licensee's obligation to ensure that
their financial services are provided efficiently, honestly and
fairly, is a recurring theme of ASIC's guidance. RG 256 says
part of complying with these obligations means taking
responsibility if things go wrong. This includes remediating
clients who have suffered loss, so that they are put back into the
position that they would have been in if not for the misconduct or
ASIC also makes clear its expectation that licensees will take a
proactive approach to review and remediation, and will not wait for
affected consumers to complain. The systemic issue itself could be
identified in a number of ways, including through complaints.
However, once the issue has come to the licensee's attention,
the licensee must seek out the affected consumers, whether they
have complained or not.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).