Addressing the House standing committee on economics yesterday, the regulator’s deputy chair, Karen Chester, said ASIC would soon update its Regulatory Guide 256 into client review and remediation, obligating institutions to speed up their so far slow progress on refunding customers.
“RG 256 sets out the principles [for remediation], but it doesn’t go to timeliness – we will address that in the new guide,” Ms Chester said.
“We think there are opportunities for financial services firms to do better on remuneration, not just on timeliness but also erring on the side of generosity to ensure they are getting money out to customers more quickly.”
Ms Chester said there were currently 89 active remediation activities in progress across major financial services licensees, with a total of $828 million having been returned to customers so far.
However, she added an estimated $2.99 billion was still to be refunded as a result of poor advice or fees for no service over the next 18 months.
“We remain frustrated with the pace of remediation programs,” Ms Chester said.
“We are seeing green shoots in terms of the culture within some large institutions, but we will be consulting on this document around what our expectations are for remediation programs going forward, focusing on things like transparency and how many cents in the dollar is going through to the consumer versus paying consultants.
“That guide will empower those entities to satisfy community standards on those programs going forward.”
When further questioned by committee deputy chair Andrew Leigh, Ms Chester conceded some institutions were spending large amounts on external compliance consultants, but that these were often necessary due to the poor levels of data available around historical misconduct.
“The one clear take-out is the longer it takes to identify problems early on means that remediation becomes a long legacy to be paid,” she said.
“There is a substantive consultant spend with the large programs, but it’s largely a function of old systems and old conduct and needing to leverage consultancy support to do that. At the end of the day, where systems are poor there’s two options for the board to consider – do we err on the side of generosity and get these payments out quickly, or do we have a large consultancy spend and take more time to make sure we’re compensating the exact amount.”
“err on the side of generosity”?? It’s clear the big banks already are doing this. They have been paying out millions to clients who did receive the service they paid for and don’t understand why they’re getting refunds.
How can ASIC possibly know there’s $3B in unpaid remediation? Are they just assuming that all fees should be refunded anyway, because in their view all advisers are guilty until proven innocent?
ASIC gave evidence at the RC that records they cant legally go back pass 7 years – but they are.
No wonder ASIC is getting frustrated – and it’s not the fault of hard working Advisers.
In April 2015, ASIC issued media release 15-081MR: Investigation into charging of advice fees without providing advice. And the big 5 did not act.
On October 2016, ASIC issue RG499, Fees for no service: ASIC require the Big 5 licensees to prevent these failures from continuing and to significantly reduce the likelihood that similar failures will occur in the future. And the big 5 did not act.
In August 2018, ASIC issue IS 232 outlining the fees, no service remediation responsibility and methodology. And the big 5 did not act. And by not acting, I mean no change to their policies, compliance checks or supervision.
Not until the embarrassment of the Royal Commission did the 4 major Banks and AMP decide to put some energy and resources behind investigating fees and no service – some 4 years after they were put on notice.
IS232 and Corps Act 917E make it clear that the Licensee is responsible for the conduct of it’s Representatives and requires the AFSL to pay compensation to clients, as a result of the representatives conduct.
In the case of fees and no service, almost all Representatives followed the rules and policies of their AFSL. The AFSL interprets the law and makes its own decisions around compliance and operating policies, which the representative is obliged to follow. The AFSL is obliged to have in place sufficient monitoring and supervision resources or the correct policies or processes to ensure that the Representative follows their policies. If the AFSL has misinterpreted the law, or failed to have adequate monitoring and supervision in place, then that is the AFSL’s responsibility.
It is bewildering that some of the Big 4 are now attempting to pass the liability (costs) for any client remediation payments around fees and no service onto the Advisers who paid these Licensees for what has turned out to be very inadequate compliance policies, monitoring and supervision.
Fees for no service indeed.
the old, “refer to the RG” trick. Well done Karen; a name very befitting.
I see a client in the street now and they say “how’s things going” I say Good. Now I go back to the office and do an RoA saying no changes, because apparently that’s ASIC definition of a service.
It’s a reflection on this industry when you have a Government body stepping in and states what a definition of a service is. (that being the production of a RoA). I would say 99% of Advisers over a period from 2009 to 2016 would not have a RoA on file annually, yet provided plenty of advice beyond what they paid. Driving to hospital to get a Binding death nomination signed…dose not count….claiming age pension…does not count….completing refund of franking credits….does not count….meeting with solictor to design proper estate plan….does not count….Second, if ASIC asked Westpac Bank in 2016 what’s taking so long and Westpac licensee just started contacting advisers in 2018 then what’s going on there?
Very true. There is something absurd about this.
working in the financial services sector gives me the shits.
how can you work giving professional advice when ASIC tells you what to do..?
so 10 year time frame for investments – so then why a yearly review..? BS.
Are you serious? Are you saying you shouldn’t need to review investments for 10 years? haha.
If you’re doing investment properly even annually isn’t enough. The volatility throughout covid proves that, and clearly asset allocation should be tinkered accordingly throughout these events (not even getting to the underlying investments themselves).
That is not correct either, you assume a very active portfolio with assets that are significantly off strategic allocations. Michael Kitces (amongst many others) has done good research on the ineffectiveness of over rebalancing, the costs etc and alternative rebalancing methods. Then again if you aren’t advising / tinkering every few months you can’t charge high fees? Not rebalancing doesn’t mean you can’t check in with clients though – that is just good service
Ok Mr Buffet, can you tell us how much better your clients are with thier quarterly rebalancing? Did you pick the low? Most of this investing is long term, short term tinkering is a great way to lose money. None of my clients changed anything at all during this latest drop, most kept investing, but no you tinker with asset allocation so therefore crystallise losses, and hope the gains come after. Not smart investing. Clients should be invested as per thier risk profile, not on what the market is doing, its planning 101
Clearly you’re all over it Anonymous. We should go and get your advice ‘tinkering’ with asset allocations throughout. You sound like a genius…
What I understood BS meant was that the Regulator was self-contradicting. But you wouldn’t have the time to get that because in your world you are too busy ‘tinkering’ with other people’s assets.
The thing these government bureaucrats don’t understand is that it’s a bloody complicated and lengthy process to trawl through old data from paper based systems from 2008.
Just pay out the last 10yrs ‘free for service’… The reality is, it costs more to pick up the old files and go through them so the banks will take the approach of just pay it back even if services were provided for many years. There is something seriously wrong with that in my view, the headlines suggest that advisers have been doing nothing for clients and have been dodgy for years when the majority of us are hard working and look after our clients every day.