Churn, bad advice go hand in hand: ASIC

Australian Securities and Investments Commission (ASIC) deputy chairman Peter Kell has identified a clear link between financial advisers who give sub-par advice and churning.

“From ASIC’s perspective, we see problematic churning in just about every case where we see problematic advice in a licensee more broadly,” he told Professional Planner.

While the Financial Services Council (FSC) ponders its next move after a failed attempt at developing a self-regulation strategy around life insurance and churning, Kell says he understands the difficulty in establishing a new framework.

“This sector, perhaps more than others, regularly faces collective action problems, for want of a better phrase,” he said. “Any company that moves first to deal with commission structures is at a significant disadvantage.

“So you have to deal with these things collectively. And that is the question: how do we deal with these things collectively? Should this be done through industry self-regulation or is stronger regulation needed?

“Clearly in the case of FoFA and the commissions there, it required stronger regulation.”

However, Kell is optimistic that there is still an opportunity for the industry to implement a self-regulatory mechanism.

“I know the FSC is still working on that. I know there are people in the industry who are committed to that,” he said.

“But that isn’t ASIC’s code or framework to develop. We are interested observers. We have said publically that if this doesn’t come off then, not surprisingly, we will take a stronger focus on the industry in terms of surveillance and looking at ensuring proper practice.”

The regulator would not be drawn on whether additional reforms would be required.

“In terms of whether it would require some sort of additional law reform, that’s not for us to propose,” he said.

“It would depend on the government’s view as to whether there were significant ongoing problems and whether these could be worked through by the industry.

“I hope people in the industry can work constructively around that.”