Analysis conducted by research house Morningstar argued against Treasurer Josh Frydenberg’s comments that the regulation will encourage greater transparency and accountability of proxy advisers.
“In Morningstar’s view, these changes are flawed as they place undue pressure on a sector that has been effectively highlighting corporate issues, helping institutional clients identify weaknesses and mitigate risks, and ultimately improving investor outcomes,” Morningstar ESG analyst, Erica Hall, wrote in the new report.
The reforms, set to kick off next month, will require proxy advisers to have an AFS licence to provide advice to institutional shareholders, to simultaneously share corporate governance advice to shareholder clients with the companies they are providing advice on and to be independent of their institutional clients by 1 July 2022.
In the report, Ms Hall argued that the reforms “appear to change little” for corporate governance but will impact the operations of the industry itself.
“The new regulation is broad and dictates who can and cannot be employed by any proxy adviser,” it read.
“If you have worked for a superannuation fund or fund manager, it could be difficult to satisfy independence requirements to enable you to work for a proxy-adviser firm.
“No justifications are given for these restrictions, saving ensuring independence. Ironically, no such restrictions apply to the employees of our public regulators and regulated entities, where shifting between public and private-sector employment occurs with some regularity.”
Late last month, the Australian Council of Superannuation Investors (ACSI) criticised the reforms for not being in the interests of millions of super fund members.
“Due to ACSIs unique operating structure – their board is made up of a subsect of its members who are also their clients – ACSI will falter under these reforms unless it can find a new operating model that is legally compliant with its extended AFSL requirements,” Morningstar’s report continued.
“None to date have been put forward.”
Ms Hall added: “Proxy advisers can be akin to the pebble in the shoe of a company, painful and difficult to ignore. Changes in regulation may prevent the pebble from lodging in the first place.
“Skewing the balance of power in favour of companies, as these regulations seem to do, is not necessarily a positive outcome for shareholders.”
The stance taken by the AIOFP ought to be applauded in part but also criticised in part. The reforms we have all experienced have been flawed from the outset. Jane Hume herself acknowledged that FASEA is a disaster. It is flawed as the many problems leading to its demise last year could have been avoided if only a Regulatory Impact Statement had been conducted from the outset. This includes the demise of many businesses and sadly mental health of many and deaths of a few. This was sheer incompetence and hypocrisy as when in opposition during the creation of FOFA, much of the FASEA and LIF and other destructive elements of the current government regarding our industry was vehemently opposed.
While reform of the industry is vital, if the industry is to be considered a profession, then much like the medical profession, there are the doctors, the specialist, and the drug manufacturers. So, to with this industry whereby there ought to be, planners of a general nature, the specialist while product manufacturers are banned from plying their product to consumers who are often compromised for profit and subject to poor offerings that is not is in their best interest.
Politicians of both persuasions have tinkered with and damaged this industry time and time again. Politicians who do not listen and act with malice and in the interest of a financial institution or industry fund to the detriment of consumers, ought to be removed. These politicians are supposed to act in the interest of the voter and not for their mates in the ISN or large financial institutions.
The AIOFP need to appreciate that the roadblock to professionalism is integrity at all levels. This infers that adviser need to receive education and be appropriately qualified. The issue here though to what extent? Consider then the model in the United States, where if you choose to specialise in and advise on life insurance matters, then your licence is specifically limited to this activity only. If you decide to participate in fund advice, be this through investment in any paradigm, you would need to commit to a full licence that provides access to advise accordingly.
All forms of remuneration prior to that of FOFA, ought to be re-instated. A competent adviser though would need to then satisfy the full qualification at a degree level AQF7 and above to address a client and be remunerated accordingly with mandatory reviews on a client. A client ought pay for this service by a method beneficial and helpful to a client. This could be direct or via the product if the client has made an informed choice. This was stipulated by the Royal Commission after all.
All AFSL’s ought to be merely service entities that an adviser can use at cost. These entities can and should compete to be a service provider to the industry and its advisers. Not act like parasites feeding of advisers. The need to provide meaningful advice addressing concerns brought to an adviser without meaningless drivel in a Statement of Advice would assist greatly in reducing cost all of which is currently passed on to advisers.
As to associations themselves, advisers should be part of an association that does not have any conflicts especially by engaging with and receiving support from institutions that themselves seek to use this as leverage for an alternate agenda detrimental to not just the adviser bu ultimately the consumer.
This is how professionalism begins.