Announcing the forthcoming release of what would become the regulator’s Consultation Paper 332 on promoting access to affordable advice for consumers, ASIC commissioner Danielle Press seemed to suggest the regulator was hoping for a quick fix that would solve the problem of soaring advice costs.
“Out of this process [the industry] could come up with what are the five things you need, what are the bite size things we need government to do here to move it forward,” Ms Press told the FSC’s Future of Advice Summit in October.
“If you can get some alignment on that and clarity on what the industry needs, there is a supportive regulator and government is supportive of those things if they can see the right model.”
While the pragmatic sentiment of Ms Press’ comments were admirable, the subsequent industry response, which has been flowing through in submissions from the major industry associations this week, has suggested it’s unfortunately just not that simple.
There are some responses that suggest a refresh of the way ASIC puts together its regulatory guidance would be helpful. The FPA noted the regulator’s newer RGs have been more “user friendly” and that the old ones may need to be updated. The AFA also put forward the idea that more guidance should be delivered in formats such as video which could allow a closer application of the rules to a real-life advice scenario.
But a lot of this also comes down to the perception among the advice community that ASIC – among other regulatory voices in the industry, including FASEA and AFCA – is not that interested in helping advisers to learn what is right and wrong, and more interested in catching them out.
Take the safe harbour provisions, which have evolved from a guideline to advisers in meeting the best interests duty, to a compulsory box that must be checked in order to pass an audit, regardless of the circumstances. This is mentioned in the FPA submission – which calls for a repeal of the provisions – as being potentially used against advisers in situations “where a simpler consideration of the matter would demonstrate that the financial advice satisfied the best interests duty”.
The AFA’s submission suggests such hardline approaches have worsened since the royal commission and the adoption of the ‘why not litigate’ stance by ASIC. The idea that enforceable undertakings or industry bans were somehow a ‘weak’ method of punishment, the association argues, did not gel with the advice community which was already facing tough consequences for compliance breaches.
“Demands for ASIC to be more assertive and litigate in preference to enforceable undertakings … seemed to result in a regulator who was already very vigorous and assertive becoming even more so and seeking to litigate before consideration of other option. It is important to appreciate the fear that this mantra has created, on top of what was already a very apprehensive advice community,” the submission states.
The AIOFP echoed the same sentiments in its submission, suggesting that “fearing an ASIC investigation for minor breaches has induced advisers to implement all compliance requirements to avoid possible prosecution”.
In other words, it’s not the rules itself but ASIC’s attitude to enforcing the rules that is the problem. Or to quote the famous philosopher Dennis Denuto, “it’s the vibe”.
It’s easy for regulators, compliance departments and licensees to get caught up in this culture of fear, driven by historic media headlines of both legitimate wrongdoing in the advice space by the major institutions, and genuine criminals seeking to do nefarious things with investor money – which, as last week’s developments around the Melissa Caddick case will attest, will continue to occur regardless of how much regulation is implemented in the industry.
What is more difficult to remember is that behind all these hard line stances and crackdowns are real people, most of whom are trying to run a business as best they can and who are profoundly affected by not being given the benefit of the doubt. Stories of advisers having to give up work due to stress, or worse, are becoming more prevalent in the industry, a timely reminder that, as the AFA submission suggests, most advisers are simply vulnerable small business people like those in any other industry.
So how do we solve this problem of enmity and distrust between advisers and regulators? Hopefully ASIC will give some thought to this when they collate the submissions for this consultation. Some constructive ideas have been put forward by many of the industry bodies, including establishing a specialist adviser unit that practitioners can go to for case-by-case compliance rulings, conducting regulator roundtables between ASIC and the advice community, and a greater focus on proactive on-site visits from the regulator that seek to educate and assist advisers and compliance staff, rather than enforce.
With a potential cleanout of senior leadership also on the cards given chair James Shipton’s involvement in the recent expenses scandal, this also holds the promise of a new broom at the regulator. Given the recent feedback from industry, and the government’s focus on making advice more accessible, culture change has got to be at least a possibility.
Sarah Kendell, editor, ifa
I love the irony of the fact the bureaucrats hate advisers, but then those are in PSSap are in one of the worst super funds there is. I love telling 40 year old public servants how they can save $100k in fees and get better returns elsewhere.
Perhaps ASIC senior management have a “we’re interested and here to help” belief, though unfortunately the majority of their Analysts and even their supposedly “unbiased, independent” Advocates aren’t – from personal experience of many we know as well as our own, they’re heavily biased, inexperienced and generally come in with a gestapo-like attitude with a heavy-handed, accusatory response to many things that are not in the least bit nefarious, and could be resolved with a simple question or two – not a Hearing to determine whether to ban someone from the industry or not.
How much of this is really the regulator? – it’s the legislation in view.
What we have now is a 1920’s steam train in the corps act linked up to maglev carriage. Just as you would suspect, it’s dragging the fancy new carriage along the ground destroying it while bellowing soot and sulphur into the air.
Re ASIC – sure we don’t ask gangland detectives to write the criminal code. If you’re to close to the criminals it’s easy to think everyone is a criminal. But if your underfunded and kicked by the senate every time someone gets mugged you go after the bloke j-walking not the crafty mobsters.
The corporations act is a far bigger problem.
[i]
Section 766b
For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:
– is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
could reasonably be regarded as being intended to have such an influence.[/i][i][/i]
In the days when an adviser was almost always an employed sales person for the fund manager or had choice of which volume bonus arrangement they liked, this was a big departure from the CAR but it was workable.
Advisers would often prepare the initial recommendation to move them into a product they controlled for no upfront cost and then charge for implementation/ongoing advice. Strategic advice came secondary to product sales and that’s the way it was.
The consumer protections? Clients had to know what they were paying and the adviser had to have a reasonable basis for their advice. This meant that financial advice was pretty limited (super,insurance,investment, repeat) but also easier to monitor, insure, finance and work with.
Today the corporations act, old regulatory guidelines and an ethical code of conduct combine to create a nightmare for the regulator, advisers and their clients.
Is it personal advice to suggest someone leave their super as is because the cost of preparing the advice exceeds the likely benefit? Probably. If you make this determination casually after completing a fact find, almost certainly unless you want to enter into a costly debate about what “make a valuation means” and can prove that the client was the inquirer. God forbid those who identify something and advise the client (standard 6 – fasea COE)
Is declining to provide advice personal advice personal advice suggesting they retain their current products? Depends on how you word it or how the client hears it. Since intent means nothing if a reasonable person thinks you intended to influence them.
Are there a billion other ways to interpret the legislation? Yes. Do any of those interpretations EVER put stock in the idea that the financial adviser a qualified professional bound to act in the interests of their client? No.
Removing conflicts and the code of conduct was a good thing but the train at the front isn’t designed to carry the better, cleaner carriage and advisers are walking away from the burning platform as quickly as they can.
Very true.
So well explained. Very true
It is intesting thathte focus is on ASIC and the approach they take. I agree that this is a point of contention given 80% of FDS issued are non compliant due to the letter of the law approach. However, when you speak to staff at AFCA, they pretty much ignore the SOA as a useful place of protection for the advisor. They believe the client when they say…. “the advisor never told me” and unless there is sufficent written evidence then the advisor will struggle.
I have tried to find a way to do advice in a limited way, but ASIC prescribe what we must do to meet a review, what must be in an SOA, to the point the dealer has set signifcant expectations. AFCA have set the bar very high on how we document that the client was aware fo the risks.
A final point clients need advise and perghaps what they say is the palce to start rather than the industry that needs jobs in compliance. Afterall what if there was less complicnce would ASIC et al be happy to lose there jobs. Perhaps the ultimate conflict of interest.
ASIC doesn’t care about advisers (or clients). I have heard first hand the anti adviser stance if rife at ASIC. They think every adviser is ripping of clients regardless of the facts. ASIC is more interested in banning and shutting down the advice industry than giving clear guidance, expectations and templates to meet the BID obligations. They would rather give carve outs for intra fund and robo advice than fix the mess they have made.
It is laughable to even mention about ASIC and advisers being on the same page. Advisers are battling for better outcomes for clients, making it easier and cheaper to get good quality advice. ASIC is more interested in banning advisers and forcing clients to get poor quality conflicted advice from product providers or robo. To think this can be fixed easily shows how out of touch Danielle Press and the rest of ASIC are. They have never spoken to an adviser unless they are trying to ban them. As an extension advisers won’t speak to them because of their combative attitude and focus on punishing rather than educating. The result, clients are worse off, less are getting advice they need and those who are still getting advice are paying significantly more. Great job ASIC, tell us again why advisers and licencees are the problem.
Yes, it is too dangerous to draw ASIC’s attention to you.
Pretty much spot on. Unfortunately advisers are coming from different directions. One lot are achievers and the other lot don’t particularly like achievers. End of story.
20 years of ever increasing BS REGS on top of more BS REGS, on top of ASIC Levies, on top of FARSEA, on top of Kangaroo Court AFCA, its PURE STRANGUALTION BY OVER REGUALTION FROM 9 DIFFERENT REGULATORS THAT DON’T EVEN HAVE CO-ORDINATED REGS.
Now we have Admin Platforms wanting to be 2nd layer AFSL’s checking SoA’s for upfront fees and FDS Optin forms almost exact duplication of the same Adviser FDS forms. It is utter madness.
Plus now we have the ATO holding up new SMSF Members or new SMSF funds so the ATO can be a 3rd layer of AFSL compliance and check if a SMSF is suitable. The ATO then can’t tell you how long it will take so after 60 days you then have to lodge complaints to get anything moving.
FFS Bureaucrats you say you want more Affordable Advice = MORE and MORE BS REGS at every turn.
[b]It is so oxymoronic[/b][b][/b]
Unfortunately these Canberra Bubble Bureaucratic Buffoons have zero real world experience.
Exactly.
Cue Robo Advice – just product floggers under another name