Last week, an ifa editorial correctly pointed out that ASIC has been beating up on the independents for years and should do more to punish managers in institutions, not just advisers.
We have been bemused for many years how institutional breaches of the regulations results in no person being banned and what is tantamount to a ‘slap on the wrist’ as punishment occurs. These offenders are either moved on within the organisation or terminated but emerging elsewhere in another institution in a similar role.
But the blame cannot be placed entirely on regulators. ASIC operates within the framework politicians (or lobbyists) decide.
A major contributing factor to the problem is the institutions having protection against conflicted behaviour under Chapter 7 of the Corporations Act. Institutions can be as conflicted as they like without breaching any regulations, which cannot be in the best interests of consumers, but somehow politicians allow this environment to exist.
When you combine this with institutions having the ability to get a PDS ‘registered’ with ASIC without examination of the business model then permitted to go ‘shopping’ and paying for a suitable rating from a conflicted research house, we have a serious consumer red flag environment that the politicians are ignoring.
We also classify advisers as being consumers of these products but somehow we get blamed as everyone runs for cover if it fails. How can advisers, who must rely upon some third parties like research houses, trustees, custodians, fund managers to perform their duties efficiently, get blamed for a product failing?
The old analogy of a person going into a chemist shop to buy a product from the attendant/adviser that fails is apt. Do you sue the adviser, the product manufacturer or the government department that allowed it onto the market for consumer consumption in the first place. I think we all know the answer to that one.
When an independently-owned practice principal breaches the regulations, they are treated like criminals, publicly embarrassed and banned regardless of mitigating circumstances. In the case of a failed product the question of “why was it used?” is asked by ASIC. A response by the adviser of “the research house approved it” is met with “irrelevant, what did you do?”
Once an adviser is in this vortex, few escape unscathed. This stain stays with the adviser for life. There are clearly two sets of rules operating within the industry.
As for the best interests and conflicts over recommending their own products to clients findings, what did the politicians expect when the vertically integrated structure received ‘carve out’ under FOFA legislation? It is the most conflicted arrangement possible that makes a total mockery of FOFA objectives to eliminate conflicts in the industry, but somehow it exists.
The same can be said about how SMSF administration fees going to an adviser can be considered not conflicted but an adviser taking a platform administration rebate somehow is!
The very large elephant in the room is the financial muscle and power of the institutions to influence politicians that needs to be addressed. We have seen retired politicians working as ‘consultants’ for institutions many times over the years.
It’s not too hard to join the dots.
Peter Johnston is executive director of the Association of Independently Owned Financial Professionals (AIOFP).
ASIC will not revoke the license of the “serial pest”! That said an ASIC removal of a board member of said “serial pest”, would get everybody’s attention.
It’s interesting and also somewhat disturbing. I recall a FOS decision where the licensee had to pay a significant amount of compensation to an advised investor because of a 10% weighting to a failed managed fund in a diversified portfolio. But then a court decision on the very same fund with a different investor and different licensee went the other way, claiming it was reasonable that the adviser should rely on third party research. Now FOS want an increased threshold for decisions…god help advisers, because no-one else will.
ASIC may operate within the framework that lawmakers create, but it is senior individuals within ASIC that decide which groups of people will be subject to enforcement of those laws. Consequently financial planners are pursued with “furious vengeance”, while accountants and union funds are able to operate with complete immunity.
Good article but sadly nothing or no one will do anything about this. If the shoe was on the other foot with FOFA and Industry Funds it would be a very different story so much so that FOFA would never have made it through.
Tell me, how many Industry Super funds are required to send out a FDS and Opt-In form every year/two years to retain their client base? The answer is ZERO
Actually Edward that is incorrect. Where an ongoing advice fee is charged for an ongoing service, Industry funds also have to send out FDS and Opt-in. I know that to be the actual case.
However we also know there is a view out there that some Industry funds don’t charge for their advice service and subsidise it through their other fees. “If” this is actually true, all I can say it’s certainly not all industry funds.
Peter, good article. the main issue is still and always will be the ability of management to hide and escape accountability. Once a few have the pleasure of a court appearance and subsequent punishment, it will be interesting to see how “” honest “” the remainder behave. No penalty- no need to worry is the order of the day so keep making the bonus look good. maybe an R C is the only way to clear out all the suspects- top-middle and bottom management.