Speaking at the recent SMSF Association Technical Summit, Allens partner Michelle Levy said one of the most surprising aspects she’s found in her role leading the Quality of Advice Review is the level of fear felt surrounding ASIC and AFCA.
“I am actually taken somewhat aback and, maybe I shouldn’t be, but there’s a real concern that very minor breaches or very minor things are going to lead to very serious consequences,” said Ms Levy.
“If you look at the cases that ASIC has actually brought, they are in the main quite serious issues so that surprises me and that’s a hard one to solve. How do you address fear? It’s obviously having a big effect on what people do.”
Speaking on the same discussion panel, FPA chief executive Sarah Abood also agreed there is an “environment of fear that exists” within the financial advice industry.
“It’s very much the case that advisers are literally terrified of forgetting a page of the SOA or something of that nature. Advisers and dealer groups have a genuine fear that their businesses will be destroyed and that their PI insurance will be broken because of something like that,” Ms Abood explained.
“That’s driven a lot of issues in the profession — not just the regulations themselves, which are complex and overlapping and in some cases duplicative, but also the fact that so many people are interpreting those regulations in a particular way and building into it into their process and systems the outcomes of experiences that they may have had in front of the courts or in front of AFCA.”
As a result, Ms Abood said advice templates are getting longer.
AFCA acting leading ombudsman, investments and advice, Shail Singh said creating fear is certainly not the objective of the AFCA.
“This fear factor is not ideal. We like to be predictable, we like to be consistent. We have to do what’s fair in the circumstances and we have a fairness framework to explain how we go about that,” said Mr Singh speaking on the same panel.
“I still am really surprised when there’s an AFCA decision that’s issued and a whole compliance department might change their systems and processes on the back of that one decision that was dependent on the facts.”
Mr Singh noted that there are compliance-focused groups that aren’t helping the situation.
“They will take that decision and say, ‘We need to do this, that and the other’ and I would prefer [advice firms] to come and talk to us about it. We’d be happy to explain the context of that decision,” he stated.
“Most decisions are based on their individual facts. If there are things that we think the industry could improve on, we will generally put out an approach paper on it and we will consult on that approach.”
AFCA and fairness do not exist. The process is destroying the industry,and this is why so many of the large licensees closed. Mr Singh knows the issue but is not prepared to drive fairness , it is all about retrospective remediation not about being an ombudsman
ASIC and Treasury are corrupt. Full stop. It’s in their interest to keep Advisers that could call them out for that corruption shaking in their boots. It’s because we act for clients and corrupt ASIC and Public Servants want us silenced. The current bad regulation can’t be put down to stupidity or any attempt at consumer protection so the only reasonable explanation is corruption.
This is 100% correct – bad unlawful corrupt retrospective regulation. Every advice practice in the country knows it and are too scared to speak up, but we are all sitting ducks without the financial backing to challenge it all. There is a massive class action in the waiting for advisers to take on ASIC and Treasury for the destruction they have caused to the quality advice practices that have done absolutely nothing wrong over the last 10 years. The focus by the policy makers and regulators is always directed to “progressive Professionalism” without actually acknowledging their own failures and blame / responsibility shifting back to the quality advisers. The sheer ambiguous and muddy application of the Corps Act by ASIC and AFCA has led the advice Industry to the mess that it finds itself in. I challenge anyone in the advice Industry that reads this to name 1 single executive, politician, bureaucrat, policy maker, consultant etc. that has been held to account and punished for their failures other than the advisers on the front line???
It is time for half wit Politicians and ASIC/Treasury bureaucrats realise that Advisers do NOT want bad apples in the industry and want them out more than anyone else! Experienced Advisers should be advising Government. With all due respect to Ms Levy, she is a corporate super lawyer with NO experience in Advice, just another $5 million and 9 months wasted on a fruitless exercise hopefully stating what we all know……rationalise compliance, no advice subsidy and everyone pays for the advice they want.
I think what the AFCA person said warrants a response. Yes, the perception is that they are consistent and predictable. But in ways that Advisers know that need to avoid their involvement as much as humanely possible.
Yes, their decisions ARE based on individual facts, which makes it even harder to predict how that might be applied in other cases.
Hi Michelle
As a former financial adviser none of this is of any surprise to me or many of the current advisers that I know. As you are tasked with trying to fix the mess that goes with being an adviser in 2022 I wish you all the best because I feel you are going to need it.
ASIC created the complexity. Politicians let ASIC do this. The profession is dead. Financial advisers don’t even give property advice. Many people have rental properties. So how can it be in the clients best interests.? Rhubarb I say.
Correct – financial advisers don’t give property advice, but real estate agents do as they are unregulated, and because they get paid hefty commissions.
You may not be able to give direct property advice but you can still give strategic advice around cashflow, debt reduction, true returns, proposed sales dates, CGT implications, ownership structures, estate planning. I personally wouldnt want to give clients advice on what property to buy, I am not a realestate agent.
Agreed we are very involved in clients properties both home and investments, residential or commercial, in SMSF or outside super.
We don’t pick the properties but certainly provide lots of property based advice.
Fear is ok to keep Advisers on their toes BUT we have below par intelligent Politicians and ASIC Bureaucrats targeting low hanging fruit and not banning Insto Executives for their decisions.
You hit the nail on the head. Grave inconsistencies in application of the law by ASIC. Individual advisers get crucified yet Insto execs get a free pass.
“Michelle specialises in superannuation, life insurance, distribution and financial services law. Michelle’s clients include the wealth management areas of each of the major banks, life insurance companies and industry and corporate funds.” Michelle’s clients do not include financial advisers…
So she has no conflicts then – that’s a relief!
Ms Levy is surprised because this is the first time anyone has spoken to actual advisers. When you are a lawyer, doing work for a bureaucracy, you live in an echo chamber that has a vested interest in keeping things as complicated as possible to keep your job. It has been said time and again, stop listening to the FSC, Choice, ASIC, APRA, FPA etc. They don’t speak for advisers or clients, and they certainly don’t care about them. They are all leeches who need advice to be complex to survive.
The Best Interest Duty is the epicentre of much of the problem.
By inserting the word ” Best “, it allows any body or individual to have an openly interpretive and subjective view of what is defined as
” Best “.
Take a room of 5 people and they may all have differing opinions as to what they would see as “best “.
It is a catch all definition that leaves any adviser completely exposed to attack, litigation or question.
What is “BEST” ????
The Best Interest Duty should be changed to allow the adviser to be required to always act in the Client Interest.
Whilst any definition such as these can be debated, at least it still requires the adviser to be providing advice in their client’s interest and not their own and are therefore not subjected to an open definition that is indefinable when it comes to determining what is best versus what is in the clients interest.
Lawyers well know that the insertion of a single word can change the entire parameter of a clause or definition and in this case, it exposes advisers to attack on every single level.
The explanatory notes to the CODE perhaps provides the answer to “Best interest”. As advisers we are only required to IMPROVE the clients current position with our advice.
That’s interesting isn’t it.
So, what happens when you complete the full advice process in the forecast and prediction that it will leave the client in an improved position, only to have the investment market retract heavily and quickly with exposure of the clients investment options negatively impacted leaving them in a worse position than when they came to see you, irrespective of whether the risk profile was satisfied?
If we have in fact NOT improved the clients financial position, have we breached the requirements of the Code????
Lets not forget the Code of Ethics, with an understanding that needs legal cases to establish what some of the terms actually mean. I fo r one don’t want to be that guinea pig.
In my opinion, this is how it feels to me being an adviser. In the words of Dennis Denuto, you know, it’s the vibe of it.
When these words are said, here is what comes to my mind.
Mistake = Failure
Omission = Failure
Small Lack of Advice Consideration = Failure
Adviser = Criminal
Client = Victim
Internal Compliance = Group of risk professionals who expand Corps 961B(2)g and considerations toward it infinitum
File Review = A retrospective and subjective review of compliance conducted by South Park’s Captain Hindsight
Professional Judgement = Financial Advice is yet to be considered a profession, adviser testimony cannot be relied
Financial Adviser = Someone punishable if they were a professional but not considered to be a member of a profession
Collaborative Approach = Huh?
Perhaps this can change which would be good moving forward.
Forgot to add;
Financial Advice = A profession with odd characteristics whereby it could be argued there are different sets of rules for advice practitioners contingent on whom your employer is
ASIC hate Advisers unless it’s Intra Fund ISA advice paid by HIDDEN COMMISSIONS.
AFCA are an out of control, lawless Kangaroo court that will find anyway to appease even the most undeserving of consumer claims. Even when AFCA say no to the consumer, they can just keep going, going and going until AFCA will ensure they get paid.
No wonder Advisers are living in so much fear.
It’s beyond unfair the regulatory treatment. Mass BS compliance and so many different regulators that all want different rules applied.
When we become a recognised profession (soon!) we should be able to self-regulate and hold each other accountable. The need for AFCA should disappear. (Hopefully)
The need for AFCA involvement in financial advice has already disappeared with the so called “single disciplinary body”.
“Single disciplinary body” by name only from Ms Liar
Hume.
How can that be when we still have at least 7 regulators?
Didn’t the regulator come out and say they want heads on sticks? Didn’t the regulator want to impose huge fines and jail time on advisers? Or what about when the regulator went and applied todays rules retrospectively to advice from 10-15 years prior.
Then on top of this you have licensee scaring advisers about ASIC & AFCA too, to try scare them into their own compliance regime because all the licensee is interested in is protection their own finances.
Don’t these responses by Michelle Levy, AFCA etc highlight the fundamental issue. The fact that people charged with “fixing” the financial advisory sector are expresing surprise at the level of fear that exists illustrates their total lack of understanding of the nuances that are critically important in this industry.
Why can’t we get someone in the hot seat who actually understands what they are dealing with. Instead of well meaning lawyers who fundamentally don’t understand and stumble from one disaster to another. And they then get another lawyer in to clean up the mess. Where does it end!!
So very true, Mark. We need someone that understands what we have been going through in the past 5 years, watching Billions being (sometimes) gifted in remediation, hearing cases where AFCA etc have defied logic and how both BID and the COE leave us little room to nothing short of perfect in our advice and justification of it, lest we become the legal test cases to establish what is ‘right’ or not.
Yes, we’ve already decided, if asic or the like comes after us (after 40 years clean in the industry), we ll walk away. We are not facing the stress of months of legal wrangling & worry at our stage of life. We do everything to keep the ship right, but as we all know, we’re guilty till we can prove our innocence, & do we ever? Too much of a handicap…
The fact is that the Govt. along with ASIC have waged a war against the Financial Advice Industry advisers for the last 10 years, with quality advisers having to bear the massive disruption to their businesses. It is one end of the progress spectrum to improve Professionalism, and completely the other end to embark on a mission to seek and destroy. My cynical, pessimistic and tiresome view tells me that the 1 person lawyer discretionary QAR outcome is more of the same – with customers and adviser interests at the absolute bottom of the priorities. This is driven by the broad, large and highly influential stakeholder vested interests that are tied to the decision makers. What is needed is removing the duplicate and unnecessary descriptive documentation and the stripping of the powers at ASIC, so that the Financial Advice Industry is more in line with what other professions like accountants, lawyers and medicos are accountable to.
Self regulation by a recognised profession using a principles based approach to regulation will solve all of this. We need that recognition. We need ASIC and AFCA gone as persecutotrs and torturers of our profession, We need to urgently reduce the numbers of advisers suffering from burnout, depression and stress.
Why is it that the Govt. can provide the latitude on the far left for one Industry (real estate) whereby there is zero control and regulation over a person’s largest asset (the primary home – averaging $1m) and real estate agents charging on average 2% commission $20,000 per sale, mortgage brokers receiving 0.25% trail ($2,500 p.a. with no service requirement or disclosure) on a $1m mortgage, and at the far right financial advisers faced with jail time and civil penalties that puts their own house and family at risk – for a relatively insignificant breach for getting an FDS date wrong or a client not receiving an annual $2,500 per annum service fee FDS correctly disclosed or an FSG not being received or incorrect date??? Can the current and previous Minister for Financial Services please explain why there is such an ocean in differing professional regulations, requirements and penalties?
It actually isn’t fear. It is the simple realisation that the industry is broken. It could easily be fixed (for the public), but is there any will to fix it ?
It is manifested uncertainty from the many changes and duplicated processes Mike, you could call it fear or anxiety mainly generated from heavy handed compliance. Compliance should support business not dictate when it is satisfactory.
I suspect our regulator adopting the mission statement “why not litigate?” hasn’t helped the mood much
Michelle may be right, but from what ASIC report, it often doesn’t seem like only serious issues are investigated. It’s hard to determine what happened when the limit of the media release is “ASIC found that on some occasions, XYZ financial adviser failed to provide a FDS in the required time frame, or ASIC found that the advice wasn’t in the best interests of the clients.” In the first case, it seems minor, in the second case, it’s impossible to tell from the release what actually happened.
When you get told that preparing an EFDS & having it dated the day prior to your meeting is a reportable breach & puts you at risk of a contravention & banning by ASIC you do develop an elevated level of anxiety around these things….
I’m looking to get out, even though I’ve ticked all the boxes with exams, quals, CPD, etc…. stress & anxiety is killing me…
May as well let them ban us for not crossing a T, least we will be happy and rid of the entire industry. Even the Licensees change the way they require docs done on an annual basis, this then leads to “am I doing this correctly or not” for even minor tasks.