With the enforceable undertaking (EU) against Macquarie Private Wealth moving into the remediation phase on Friday, it appears the regulator may be adopting a new template for tackling problems in the financial advice sector.
The Australian Securities and Investment Commission (ASIC) last week revealed this next stage will require Macquarie to send out more than 160,000 letters to its clients, inviting them to raise concerns about the quality of advice.
There are “certainly some similarities – we’ve obviously been looking at the way remediation programs operate under enforceable undertakings,” ASIC deputy chairman, Peter Kell, told reporters during a teleconference late last week.
He was referring to commonalities that seem to be emerging in the regulator’s handling of this case and its other recent large-scale action against Commonwealth Financial Planning (CFPL).
“[A system] whereby clients can have some access to independent advice is a good one, and so is likely to be a part of the process in the future,” Kell added.
One of the most obvious comparisons is the $5,000 offer for reimbursement of clients’ costs for obtaining an independent assessment, a feature of both the Macquarie and CFPL EUs.
“If customers are not satisfied, they have the opportunity to obtain their own independent advice, and that will be reimbursed up to $5,000,” Kell said.
The Financial Ombudsman Service’s (FOS) waiving of various reporting restrictions for Macquarie clients also echoes actions taken in the CFPL case.
“I also think that access to the ombudsman scheme is a critical part…essential [FOS] can consider all matters irrespective of timeframe.
“FOS has agreed to waive any time or monetary limit that usually applies, so they will be able to assess each and every matter that requires further independent assessment,” Kell added.
Lessons being learned
Kell himself also acknowledges the learning ASIC has drawn from previous EUs it has imposed, along with the recently completed Senate Inquiry into CFPL and the regulator.
For example, the requirement for Macquarie Private Wealth to notify all past and present clients appears to head off the potential for a major problem uncovered by the Senate Inquiry, which determined the scale of the CBA’s initial compensation was seriously underdone.
Macquarie is required to send letters to all past and present clients of its financial planning division, dating back to March 2004, when it was first granted an Australian Financial Services licence. This contrasts markedly with CFPL’s approach in taking out advertisements, which places the onus squarely on clients to self-identify whether they may have received bad advice.
The services of independent experts – in this case both Deloitte and KPMG have been mentioned by ASIC – also appear to have been engaged much earlier in the process.
According to Kell, one of the issues Deloitte is engaged to perform is to ensure “that the resources dedicated to communication and remediation is appropriate…we don’t want people being left out of the loop for a long period of time”.
This alludes to another of the core criticisms the Senate Inquiry leveled at ASIC’s handling of the CBA case: the regulator’s slow response, as reported here.
“I think the comprehensive nature of this remediation program, the way in which clients are being identified…we wanted to make sure that Macquarie was able to get that right before embarking on something that only dealt with a limited set of clients,” Kell said.
The same, but different
Despite the similarities, a key contrast between the Macquarie and CBA cases is that the problems for Macquarie’s clients seem to have emerged largely as a result of systemic issues in the way the group’s financial planning division operated.
The CFPL scandal came to light after “rogue” planners actions were revealed through the efforts of both internal whistle blowers and ASIC. The systemic issues within the CBA’s wealth management team stemmed largely from management’s flawed efforts to address problems after the event.
Watchdog bares its teeth
Kell was also asked during the conference call whether he accepts there is now a crisis of confidence in the financial planning industry as a whole, responding: “It’s a sector that most certainly needs to lift its game, we want to do what we can to lift its trust…we certainly recognise that it’s a problem.”
Keen to emphasise the regulator’s ongoing relevance and rigour, Kell added: “We have been working on this, raising the alarm bells, for many years now. Our submissions to the committees that ultimately generated the Future of Financial Advice (FoFA) reforms, which were heavily influenced by ASIC submissions”.
He also referred a number of times to the regulator’s willingness to exercise its broader powers if necessary. “ASIC would have the ability to impose license conditions…the ‘enforceable’ in EU means court enforceable…if we’re not satisfied, we will do that.”
However, Kell also stressed its use of such measures is a last resort, at one point saying of the Macquarie remediation that, “it’s not a program that is in effect leading to some sort of licence cancellation.”
He later added: “completely shutting down an AFSL is obviously a very significant action to take.”
“We’d rather work with financial services licencees wherever possible, for them to lift their game, improve compliance and deal much more effectively with their clients.”
