While much of the current industry noise is centred on the impact of the FASEA reforms, last week’s SMSF Association conference was a powerful reminder to advisers that when it comes to regulatory headaches, BID could be an equally large source of pain.
This week, advisers have been anxiously awaiting news of the passage of laws that will allow an extension for advisers to complete FASEA’s new industry exam and their additional education requirements to 1 January 2022 and 1 January 2026, respectively. It was frustrating to see that the government, still struggling with a backlog of legislation from last year’s budget and beyond, failed to pass the relevant bill in the February sitting, meaning advisers will now have to wait another month for certainty around the extension.
It’s understandable that much of the industry noise and anger around increased regulation is being addressed FASEA’s way. The process by which the standards have been rolled out by the authority itself has eroded much of the industry goodwill towards the idea of having degree-level education as a minimum barrier to entry, which in itself is not a bad idea. And the time at which the new regime has arrived, at a tipping point for many advisers considering retiring anyway and exhausted by wave after wave of regulation that has hit the industry over the past few years, is adding to the despair faced by older practitioners in particular.
However, while attending the SMSF Association National Conference last week, I was alerted to another piece of regulation that has been in place for enough years now that it’s fallen out of the day-to-day news cycle, but which appears to be silently expanding its scope and impact for advisers: the best interests duty.
Following two different sessions focusing on compliance and what advisers can do to avoid the business-ending disaster of ASIC regulatory action, which I reported on last week and this week, it struck me that if you put regulations like this in any other industry, the results would be bordering on the ridiculous. For instance, in my previous career as a PR account director, I wouldn’t be able to recommend a particular media strategy for a client without first checking that every other possible combination of strategies wouldn’t have garnered them better results.
I’ve been reporting on and supporting businesses in the advice industry for the past seven years, so the fact that advisers are struggling under an ever increasing regulatory burden is not news to me, but seeing how that burden plays out in real-life case studies of advisers who may have done the right thing, but didn’t have the mountains of paperwork to back it up, really drove the point home to me on another level.
Of course that isn’t to say that all advisers banned by ASIC have just accidentally run afoul of BID by way of not having complex enough file notes. Many of those in the ban notices we in the media receive every day are guilty of horrendous, wilful wrongdoing that would probably have left their clients financially struggling for the rest of their lives.
But there is also a degree of validity in the oft-raised argument in the industry that layer after layer of new regulation will not eradicate the true rogue advisers. I’ve investigated a number of these in my career in advice trade media following tip-offs from clients and fellow advisers that were unfortunate enough to cross paths with them, and the common denominator is often that they have no interest in following the law, whatever it may be. Once they are discovered, they simply move on to another licensee with less stringent compliance or leave a complicated web of shell companies in their wake, making it extremely difficult to trace responsibility to them specifically.
While I’m loathe to suggest yet another regulation, one solution that may have merit and was raised numerous times during the royal commission process is to introduce individual licensing similar to the legal profession. If these rogues have no shell company or big unknowing licensee to hide behind, they may be less able to get away with the same tricks for years.
Given the large amounts of money at stake – what is essentially people’s nest egg, which could make or break them for life – it absolutely makes sense to legally obligate advisers to act in their client’s best interests, and for them to face punishment if they cannot demonstrate that they did so.
As Synchron director Don Trapnell said recently, in seeking to reform the advice industry the government undoubtedly means well in its intentions. However, the practical applications of these reforms, and particularly of BID as test cases continue to filter through in the next few years, give pause for thought and potentially concern.
Sarah Kendell is editor of ifa
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