Licensees aren’t judged by whether they have policies, procedures and review programs. They are judged by whether those arrangements operate effectively in practice.
For advice licensees, the best interests duty, adviser supervision and conduct risk management should be treated as connected obligations. A licensee should be able to show how it identifies key risks, supervises representatives, tests the quality of advice, escalates concerns, and improves controls when weaknesses appear.
ASIC’s current guidance reinforces that compliance arrangements must be proportionate to the nature, scale and complexity of the business. For AFSLs, this means supervision cannot be generic. The framework should reflect the services provided, the risks in the advice model, the competence and conduct history of representatives, the number and location of advisers, and the licensee’s capacity to detect and respond to issues.
This article outlines the core areas AFSLs should review when assessing whether their supervision framework is fit for purpose.
Culture, conduct and compliance
As a Licensee, your arrangements and your focus should be directed to building a culture that ensures good conduct and effective compliance.
Practically, we’d suggest that since you need to be able to demonstrate your capacity and competence to comply with your obligations, you should focus on the measures, processes and procedures you’ve put in place to protect your clients and your livelihood.
A practical review should test whether the licensee can evidence each of the following areas, not merely point to a policy that says the area is covered:
Operationalising regulatory requirements
Can you show how legal and regulatory obligations are translated into practical processes, controls and day-to-day adviser expectations?
Implementing systems and processes
Do your systems help advisers produce consistent, client-specific advice rather than simply complete required documents?
Monitoring, supervision and training of competent representatives
Can you demonstrate that representatives are appropriately supervised, trained, assessed and supported based on their role, risk profile and conduct history?
Product selection and research
Can you show how products are approved, reviewed, removed and monitored against client needs and adviser usage?
Conflicts management
Can you identify the conflicts that may influence advice and show how they are controlled, tested and escalated?
Reporting and breach management
Do your reporting processes identify issues early, assess them consistently and escalate significant matters within required timeframes?
Dispute resolution and complaints handling
Can you show how complaints are captured, analysed and used to improve advice quality, supervision and controls?
Risk management
Does your risk framework connect advice risks, conduct risks, product risks, operational risks and client outcomes?
Business planning and resources
Can you demonstrate that the licensee has enough people, expertise, technology and oversight to supervise the business it has authorised?
Integrated compliance assurance
Do file reviews, complaints, breach reporting, adviser supervision, training and management reporting operate as one connected framework?
What effective adviser supervision should include
Supervision should include pre-vetting and onboarding controls, adviser competency assessment, advice file reviews, targeted monitoring, key risk indicators, complaints and breach trend analysis, conflicts monitoring, product and strategy risk oversight, remediation triggers, and board or management reporting.
ASIC REP 515 remains relevant because it was specifically concerned with how large financial advice institutions oversaw advisers and addressed non-compliant advice. ASIC also provided checklists in REP 515 for background checking advisers, reviewing personal advice files, and using key risk indicators for monitoring and supervising advisers.
Best interests is a system obligation, not just a file obligation
The best interests duty is often tested at the advice-file level. That’s understandable. The file is where the client’s circumstances, the subject matter of the advice, the strategy, the product recommendation and the adviser’s reasoning should come together.
However, for a licensee, best interests shouldn’t be treated as a file-by-file obligation alone. A compliant advice file may show what happened in one client engagement. It doesn’t, by itself, prove that the licensee has designed, implemented and maintained a supervision framework that supports good advice across the business.
A licensee should be able to demonstrate how its systems make it more likely that representatives will give advice that is appropriate, well-reasoned and in the client’s best interests. This requires more than a template, a checklist or a post-advice review. It requires a connected framework that influences adviser behaviour before, during and after advice is provided.
That framework should include the way products are researched and approved, how advice templates are designed, how client information is collected, how strategies are tested, how conflicts are identified and managed, how advisers are trained and coached, how advice is reviewed, and how issues are escalated when something appears inconsistent with the client’s interests.
For example, an approved product list should not merely record which products advisers may recommend. It should reflect a considered process for assessing product features, target markets, costs, risks, limitations and client suitability. If an adviser recommends a product from that list, the licensee should still expect the adviser to explain why that product is appropriate for the particular client. But the licensee’s product governance settings should help reduce the risk that advisers are starting from a poor or conflicted product universe.
The same applies to research governance. Research should not operate as a static library of product information. It should help advisers understand when a product or strategy may be suitable, when it may be unsuitable, and what additional enquiries may be required. Where research identifies material risks, limitations or client types for whom a product may not be appropriate, those issues should flow through into adviser guidance, advice templates, training and file review criteria.
Advice templates also play an important role. A template can support good advice by prompting advisers to address the client’s objectives, relevant circumstances, scope, alternatives considered, costs, risks, consequences and reasons for the recommendation. But a poorly designed template can encourage formulaic advice, generic disclosures or incomplete reasoning. Licensees should periodically test whether their templates help advisers demonstrate client-specific judgement, not merely document process steps.
Training and adviser coaching are equally important. Best-interests obligations should not be addressed solely through annual compliance training. They should be reinforced through case studies, file review feedback, technical updates, supervision meetings and targeted coaching. Where file reviews identify recurring weaknesses, such as poor scope definition, inadequate comparison of alternatives, weak replacement product analysis or insufficient consideration of client cash flow, those findings should be translated into practical training and supervision actions.
The file review methodology should also be aligned to the licensee’s best interests framework. Reviews should not focus only on whether required documents are present. They should test the quality of the adviser’s reasoning, the adequacy of enquiries, the connection between the client’s circumstances and the recommendation, the treatment of conflicts, and whether the advice appears likely to leave the client in a better position. The methodology should allow the licensee to distinguish between administrative defects, advice-quality concerns and systemic control weaknesses.
Conflicts management is another critical part of the system. A licensee should be able to show how it identifies conflicts that could influence advice, how those conflicts are controlled, and how it tests whether controls are effective. This may include remuneration settings, referral arrangements, ownership links, product relationships, volume incentives, adviser preferences and business-level pressures. Disclosure alone will rarely be enough if the conflict has not been properly managed.
When problems are identified, the licensee’s response is part of the evidence. Isolated file defects may require correction, coaching or client contact. Repeated issues may require deeper investigation, targeted supervision, changes to templates, product restrictions, adviser monitoring, client remediation or breach assessment. A licensee that can show how issues are escalated, analysed and resolved will be in a stronger position than one that treats each failed file as a disconnected event.
In practice, best interests should be visible across the whole advice operating model. It should influence product governance, research, advice production, adviser training, supervision, file reviews, breach reporting, complaints handling, remediation and management reporting. The question for licensees is not simply whether an individual file can pass a review. The better question is whether the licensee can demonstrate that its systems consistently support advice that is likely to be in the client’s best interests.
Evidence matters. If a regulator, external reviewer, or professional indemnity insurer asks how the licensee supervises best-interests compliance, the answer should not depend on a single policy document or a small sample of advice files. The licensee should be able to point to a functioning framework, supported by records, reporting, testing and improvement activity.
A best interests framework is therefore not just a compliance artefact. It is part of the licensee’s operating discipline. It helps advisers make better decisions, helps clients receive better advice, and helps the licensee identify weaknesses before they become systemic failures.
What evidence should a licensee retain?
As a general rule, the documents that best demonstrate the existence or effectiveness of compliance infrastructure, include:
- Board or management reports,
- compliance committee minutes,
- advice review results,
- adviser risk ratings,
- breach and complaint registers,
- training completion records,
- supervision plans,
- remediation decisions,
- conflicts registers,
- product governance records,
- approved product list reviews,
- file review calibration results, and
- control testing outcomes.
Adequacy and Scale
The sophistication of these measures, processes and procedures (which may be paper-based or integrated IT systems) will vary according to the size and sophistication of the business.
In our view, effective compliance requires an investment in technology and a deep understanding of trends and requirements.
Remember that your compliance arrangements have to be appropriate for the “nature, scale and complexity” of your business. If you need assistance, seek objective and professional advice before your deficiencies are addressed in a more public manner.
PS – If you do obtain “objective and professional advice”, don’t ignore it. Formally consider any advice you receive, particularly if the advice relates to your compliance, governance and risk frameworks. Both NSG and WRM show the dangers of ignoring written advice.
Assured Support helps AFSLs test whether their supervision, file review, breach reporting and compliance assurance arrangements are working in practice. If you are unsure whether your framework would stand up to review, schedule a confidential discussion.
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