Missing the mark

The big end of town is finally being scrutinised, but by focusing on rogue individuals instead of the dodgy incentives and commands from management, ASIC is still playing softball.

It took nothing less than a federal inquiry into its own performance to force ASIC to start doing its job when it came to the financial planning operations of Australia’s largest institutions. In some ways, you can’t blame them.

With top brass corporate lawyers on the insto payroll and executives fluent in weasel words, it must be so tempting for a regulator to focus its attention on small-scale non-compliance by self-licensed and under-resourced advice providers.

But meanwhile, clients were being fleeced or, at the very least, seen as an endgame in a financial product distribution chain they didn't even know their adviser was a part of.


Several years (and inquiries) later, ASIC’s subsequent “wealth management project” investigating the advice arms of the big four banks, AMP and Macquarie is starting to produce results, and this week the corporate regulator released a report into how the institutions are dealing with rogue advisers.

Given ASIC’s enforcement activity used to be almost entirely focused on the IFA sector, perhaps we should be grateful they are doing anything at all. And to be fair, the report doesn’t pull any punches in terms of castigating the institutions for their insufficient reporting and punishment processes where individual advisers have done the wrong thing.

But this entire focus on individual behaviour in some ways misses the point, or perhaps more accurately, glosses over it.

While there is no doubt there are some lone wolf bad apples operating within the institutions and elsewhere in the industry, the bigger issue affecting clients and the behaviour of advisers is not unethical individuals, but a corrupt system that continues to see advisers as distribution vehicles.

It was the “boiler room” tactics and sales KPIs set for advisers at Commonwealth Financial Planning, for example, that caused the scandal, not the actions of a few loose units.

With buyer of last resort payments, volume bonuses, shelf space fees, platform/software restrictions and limited APLs still rampant in the institutional dealer groups, the status quo continues despite years of non-stop media attention and political interference.

In this way, many of the individuals ASIC’s report focuses on are not so much “bad advisers” as “good employees” – they are acting on the orders of their ultimate masters.

Moreover, the report labours at length on the topic of background checks, arguing institutions need to do more to vet dodgy advisers before authorising them to provide advice.

Maybe so, but again this misses the deeper point. The problem is not so much what happens before they join the institution, but what happens to them once they do.

Without willing it (sometimes even without knowing it) they become mere cogs in the wheel of the superannuation and financial product distribution gravy train, all of their mandated education and professional memberships almost instantaneously redundant.

I’m not saying the report is without merit or that institutions should’t do more to weed out the bad apples, of course they should.

But until somebody somewhere in the halls of power has the guts to cut down the rotten apple tree, then we will continue to get this vile farce of keeping up appearances, like the regular hearings mandated by the Turnbull government where the bank CEOs get to come and practice their latest spin doctor-authored propaganda.

If a non-aligned or self-licensed firm did even a fraction of the wrongdoing all of the major institutions have been found guilty of to varying degrees, their licence would have been revoked, and their senior management would have been publicly shamed and sentenced to a lifetime of negative Google searches.

Insofar as they were complicit in clients being harmed (rather than just mis-filed paperwork), then these managers of AFSLs where dodgy advice occurred deserve all they get.

But so do the CEOs of the financial institutions. In fact, with their expansive salaries, myriad educational qualifications and general social status, arguably their breach is even worse.

I look forward to the next report where the regulator apologises for this longstanding double standard and takes serious action against those actually responsible, rather than just the pawns in the chessboard of product distribution.

I’ll believe it when I see it.

Aleks Vickovich is managing editor of ifa 

Missing the mark
asic misses mark on rogues report
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