Risk Product, Company and Regulatory Updates as at 22 October 2019
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Product Updates
Digital advice firm drops two robo-advice tools
ASIC has raised concerns about two robo-advice tools created by Lime FS, a Sydney licensee running authorised representatives Plenty Wealth, Plenty Plus and Lime Wealth as digital advice providers authorised to provide financial advice to consumers.
Plenty Wealth is an online tool for budgeting advice, life insurance reviews, and tax, investments, and superannuation recommendations.
Plenty Plus, another online tool, offers advice on setting up self-managed superannuation funds, buying property via superannuation, and starting and stopping pensions and contributions into superannuation.
ASIC was concerned about the quality of advice being produced by the online tools, and the ability to monitor such advice. In some instances, recommendations by the tools conflicted with client goals or with other recommendations generated by the same tool. A spokesperson from Lime FS has disputed this finding by ASIC. ASIC says the level of information acquired by the tools about a client’s goals, needs and financial situation were inadequate. Lime FS has closed both tools as a result.
Plenty Wealth was a finalist for the Excellence in Wealth and Investment category of the Finnies (Fintech Australia), Australia’s annual fintech awards.
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Company Updates
IOOF buying OnePath at discounted price
ANZ’s OnePath is being sold to IOOF for over $100 million less than the original agreed amount of $975 million. The new price of $850 million was agreed to due to changing market conditions and includes lower overall warranty caps. The sale remains subject to regulatory approvals.
Myonlineadvisers closes its doors after advisers leave
Dealer group Myonlineadvisers has opted to close its doors and cancel its Australian financial services (AFS) licence due to a lack of advisers to fill spots. This year around 15 of the 30 advisers self-licensed in two separate groups, leaving half remaining. The decision was made to close based on difficulties restocking the full team after the new education standards were implemented.
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Regulatory Updates
Grandfathered commissions bill passes into law
A new law has been passed removing grandfathered commissions, effective 1 January 2021. Amounts considered conflicted remuneration that would have been paid by clients have been rebated to affected customers. Conflicted remuneration includes paying and receiving benefits that will potentially influence the financial advice given, volume-based fees paid to platform operators, and asset-based fees relating to borrowed amounts charged to retail clients.
Grandfathering arrangements applied to certain payment arrangements entered into prior to 1 July 2013. Consumer advocacy group, Choice, estimated that $1.5-$2.0 billion in fees will be affected. Advisers have been incentivised to keep clients in older arrangements that provided grandfathered commissions, rather than shifting a client into a potentially better product, thus rendering grandfathered commissions a liability.
Colonial First State facing two class actions in a week
Two class actions have been filed against Colonial First State (CFS) regarding its superannuation activities.
The first class action was launched by Maurice Blackburn Lawyers in relation to alleged breaches of superannuation trustee duties that it claims have resulted in losses to over 100,000 members. Former CFS executive director Linda Elkins is named in accusations that CFS’s implementation of the MySuper reforms of the FirstChoice Employer Super division was slow and the fund breached its duties to members.
Specifically the case focuses on CFS’s failure to move $3.2 billion of accrued default amounts to the MySuper product in a timely manner and to the benefit of members. The MySuper product costs members less and performed better than the original fund. The subject was a case study in the Royal Commission.
The second class action, launched by Slater & Gordon, relates to CFS allegedly overcharging superannuation fees to supply commissions to financial advisers from the FirstChoice Super fund. The class action is on behalf of over half a million Australians, alleging that CFS failed to act in the best interests of its members and acted unconscionably by charging members higher fees to pay for ongoing commissions to financial advisers who weren’t obligated to provide any services to members. That is, fees for no service.
The Banking Royal Commission revealed that as of 2013 CFS was funding commissions to advisers using superannuation member money. CFS continued to pay commissions from existing member accounts under grandfathering exceptions, continuing to charge members higher fees. CFS had the option to move members into less expensive, but otherwise identical funds, where commissions were not paid, but they did not.
FASEA clarifies code of ethics
The Financial Adviser Standards and Ethics Authority (FASEA) has published new guidance on its code of ethics for advisers, with the code coming into effect from 1 January 2020. The guidance defines and summarises each of the five values (trustworthiness, competence, honesty, fairness and diligence), saying it establishes ethical duties that go beyond the minimum requirements of existing law. FASEA notes that the code has the force of law.
Westpac class action launched
Slater & Gordon have launched a class action against Westpac, claiming the bank has been skimming money off superannuation account balances. The allegations include that the bank profited at the expense of superannuation members in breach of law.
BT Super for Life customers who selected the cash investment option were receiving a rate of 1.3 per cent, whereas cash was paying 2.5 per cent. The bank is accused of retaining almost half the returns instead of getting the best returns for members.
ANZIIF and LIPSWG establish professional standards framework
The Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and the Life Insurance Professional Standards Working Group (LIPSWG) have signed a memorandum of understanding for a collaboration on a professional standards framework.
Members of the two groups include Australia’s biggest insurance companies. The idea is to ensure a high standard of life insurance provider.
