Australia’s major financial planning association doubts ASIC can regulate its industry “efficiently, honestly and fairly”.
The question came in the Financial Planning Association’s submission to the banking royal commission released after two weeks of tales of misconduct and consumer abuse in its hearings in April.
The FPA’s concerns are based on the self-managed reporting system where advisory firms must confess their own misconduct to ASIC under section 912A of the Corporations Act.
“Whether a breach or potential breach is reported is heavily dependent on a licensee’s application of the breach significance test and its approach to compliance,” the submission said.
An extra dimension of uncertainty in the self-reporting system results from the firms’ view of ASIC itself.
“A further issue highlighted by the royal commission is whether the regulator is either capable or respected sufficiently to perform its duties in relation to s912A,” the FPA said.
An ASIC spokesman said the regulator would not comment on the FPA’s assertion.
Dead people being charged fees for investment advice, money taken illegally from accounts and shonky advice that left people hundreds of thousands of dollars worse off all came to light in the commission’s April hearings.
That’s all outrageous and scary. But despite years of financial regulatory reform you might be surprised what sort of behaviour still remains legal and is so worrying that the FPA says it needs to be banned.
Investment products should work
You could be forgiven for thinking the law would require investment products to deliver what they promise. But apparently not.
“At present there is no requirement for products to be true to label or an accountability of product manufacturers to ensure products perform to their labels,” the FPA submission said.
That means you could buy a fund that doesn’t do what it tells you it aims to and you’d have no legal recourse.
The FPA recommends that be changed, and its submission, in a rather understated tone, suggests “introducing such a requirement will assist both financial advisers and improve consumer outcomes and understanding”.
The FPA said that while the law demands advisory firms act in clients’ best interests, the legislation is too vague, does not adequately cover oversight of individual advisers and allows firms to ignore the wider implications of advisers’ actions.
“The significance test should encourage licensees to consider whether the conduct subject of the breach is likely to have been repeated with other clients or poses a potential risk for other clients, particularly in large scale organisations.”
That should be addressed by laws demanding firms “have in place adequate arrangements to support each of its representatives to meet the statutory best interest adviser duty; and to have due regard for the best interest of its clients in the conduct of its activities,” the FPA said.
Checking advisers’ records
The royal commission detailed three cases where advisory firm Dover Financial had signed up new advisers known to have been subject to major complaints at previous employer without investigating further. Two were eventually banned by ASIC and firms are still under no compunction to act differently.
The FPA recommended licensees “be obligated to verify that authorised advice providers meet relevant education, ethical and professional obligations as part of their onboarding process”.
“Licensees should also be obliged to check for any past disciplinary action taken against the adviser by the regulators and professional associations,” the submission stated.