Regulator should focus on ‘prevention rather than cure’: AFA

ASIC must overhaul the way it engages with advisers to focus on proactive education and guidelines that are easy to understand if it hopes to encourage more licensee take-up of scaled advice, the AFA has said.

In its submission to the regulator’s consultation on affordable advice, the association pointed to the negligible budget ASIC spent on education in the advice sector compared with enforcement, saying the regulator should adopt a “prevention is better than cure” mantra and increase its focus on adviser engagement.

“Whilst we only have a high-level breakdown of the total costs by type of activity from the June 2020 Cost Recovery Implementation Statement, that was based upon a total spend of $40.1 million, it is important to note that $19.9 million related to surveillance and enforcement,” the AFA said.

“This highlights the level of focus that ASIC has on misconduct in the financial advice sector. In reviewing this expenditure by ASIC, what is disappointing is that only $0.8 million of the original forecast of $40.1 million was being spent on education and guidance.”


The AFA said the layout of ASIC’s regulatory guides were a key example of an area where the regulator could benefit from more investment in modern, engaging content.

“As small business operators, and most of financial advice is small business, [advisers] are time poor and have numerous other competing objectives and obligations,” the association said.

“It is important for ASIC to be cognisant of the fact that they are predominantly working with small businesses, and accordingly design their communication mechanisms in this context.

“The reality is that the current regulatory guides are largely text-based documents that do not leverage the advantages of modern technology or use multi-media options.”

The association said the regulator’s post-royal commission ‘why not litigate’ stance had created a culture of fear among licensees, which was contributing to the current reluctance to allow advisers to provide scaled advice.

“The royal commission resulted in demands for ASIC to be more assertive and to litigate in preference to pursuing enforceable undertakings. This change of mind-set and approach has impacted the culture of the financial advice sector,” the AFA said.

“Licensees do not feel comfortable to challenge ASIC or to discuss with them any concerns that they have about the way they have been treated by ASIC, on the basis that a complaint could lead to a more aggressive approach.

“Whilst we have no issue with ASIC vigorously pursuing a licensee or a financial adviser who deliberately and knowingly committed misconduct, we feel that it is necessary to take a more balanced approach when the misconduct was the result of a lack of understanding of what might be a poorly articulated obligation.”

Regulator should focus on ‘prevention rather than cure’: AFA
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