The $5 million dollar man

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In just 65 advice process reviews, Independent Development Solutions (IDS) director Barry Read said he managed to identify and resolve regulatory issues that could have resulted in $5 million worth of fines.

Friday, October 21st 2011, 7:00AM 2 Comments

"The maximum fines we've found would be well over $5 million in fines,” Read said.

He said the $5 million figure would apply "If everyone was fined the maximum amount for the things we've found, such as incorrect registration, incorrect disclosure, non disclosure, that sort of thing."

Read said his analysis of advisers' processes had uncovered a number of common issues.

"The first one would either be disclosure or engagement, getting the disclosure statement right is a classic, though they're getting better.

"I'll give you an example. This morning I had 10 advisers in a session, before the session I checked them all on the FSPR (Financial Services Providers Register) and sure enough, one of them wasn"t correctly registered to be dealing as a financial adviser, yet he's given his FSP number to all of the five insurers he deals with and they"re all accepting business from him, how does that happen?"

He said that over the past few months he had conducted 750 checks and found 15% of advisers were incorrectly registered.

One of the problems, Read said, was that insurers were continuing to do business with incorrectly registered advisers - leading the advisers to believe they were in full compliance with all regulations.

"They [insurers] don't always know what to check, they just go 'is he registered, yes, he's registered', the fact that he's registered for acting as an insurer instead of for providing financial advice for retail clients is a different matter."

Read also identified the fact finding analysis as problematic for some advisers.

"They're very good at capturing facts - but capturing did the client say that was a need or did the adviser say that was a need - that's hard to identify sometimes."

He said while it didn't necessarily mean non-compliance, out of the most recent 65 reviews he conducted, "I haven't had one that was all green across the 87 points we check."

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