ASIC Commissioner Danielle Press is keen to reassure advisers that she supports their industry and believes in the value of sound financial planning, but also warns that strong regulation is key to rebuilding trust and the regulator’s enforcement “posture” is different these days.
Speaking to Professional Planner, together with ASIC’s executive director of wealth management, Joanna Bird, Press says she is a “big believer” in advice. Herself a former planner, Press recalls seeing an adviser and confronting her own “very badly” structured finances. “It was certainly an uncomfortable position,” she says. “but it did highlight for me personally that you actually have to pay attention to this stuff, it doesn’t just fix itself.”
Stepping into the role of ASIC Commissioner in the middle of the Hayne royal commission, Press knew she was in for an “eye-opening experience”. Hayne would go on to chastise ASIC for being soft on enforcement, but Press says the regulator’s tough new stance – including the ubiquitous ‘why not litigate’ mantra – was in development long before Hayne’s criticism.
“To be fair, we’d started to change our posture over the course of the last 18 months,” she says.
It’s willingness to go hard after financial services providers, including advisers, was demonstrated when it took AMP to court in May for covering up details around the fee-for-no-service scandal. Press, however, doesn’t believe ASIC’s newfound fortitude should lead to an adversarial relationship with advice providers.
“At the end of the day it is a mutually beneficial relationship,” she says. “Good financial planners have a very important role to play and we need to help restore trust in the financial system, but without a strong regulator behind that it’s very hard to do that.”
There are “ratbags” in the system, Press says, and the regulator’s job is to ensure they aren’t causing harm to customers. “For those that are doing the best they can for their clients that is definitely a good thing,” she adds.
ASIC’s increased pressure has been felt by advisers. When Joanna Bird commented at the Professional Planner Licensee Summit this month that “there is no need for ongoing advice if the product works properly,” it raised concerns that the regulator didn’t see as much value in financial advice as those providing it. Graham Rich, managing partner and dean of Portfolio Construction Forum, remarked that he was “far from convinced that Ms Bird has any appreciation, let alone commitment to, the role and value of financial advice.”
Not so, says Bird. She points out that the comment was made during a panel discussion around the industry moving towards three types of advice; comprehensive advice for wealthier individuals, personal advice for middle income earners at key points in their life, and “simple, cheaper,” advice facilitated by technology.
“The comment wasn’t in the broader context,” Bird says. “Obviously, we do recognise the need for advice. It should be fairly clear that with those basic things like budgeting and planning for retirement… advice is needed.”
Press gives a further endorsement of the advice industry, saying “the way you structure your affairs, the way you think about estate planning and budgeting are all really important components to having good financial health”.
She also noted that despite its current headwinds, the UK’s 2012 Retail Distribution Review provided a precedent for how the industry can come back stronger.
“There is a lot of discussion at the moment [saying] the advice industry is going to diminish and die, but I don’t really believe that,” she says. “I think it will reinvent itself into something that is better for consumers”.
‘Watch this space’
Press acknowledges that ASIC has a lot on its financial planning plate, the least of which is figuring out how to properly regulate managed discretionary accounts. She says they are “watching very closely” to ensure there is transparency around fees and no conflicts arise from the provision of MDAs.
“We are also thinking very hard around the licensing of MDAs and if there are additional requirements that will be needed around the responsible officers of those institutions offering managed discretionary accounts,” she adds.
Capital requirements for licensees is another pressure point for the regulator, with huge remediation payments paid by the banks raising questions about how adequately positioned non-institutional licensees are to handle risks that aren’t covered by professional indemnity insurance. Last year ASIC proposed that market participants “comply with a risk-based capital regime instead of a net tangible asset requirement, and must hold core capital of at least $1,000,000 at all times”, though no decision has been made yet.
According to Press, it’s a “watch-this-space thing”, and will depend on whether there is a compensation scheme of last resort that might take on some of the role of capital requirements.
Bird agrees, adding that regulatory guidance on how adequately resourced advisers should be is already set out in regulatory guide 166.
“I guess we don’t just see capital requirements as being the total answer,” Bird continues. “As Danielle said, we see it as being a combination of capital requirements, P.I. insurance and hopefully a compensation scheme of last resort.”
On grandfathered commissions, Press says ASIC has been an advocate for reform “for some time”.
“We’ve been concerned about the continuation of some of the services that incentivise advisers that give bad advice,” she says.
Press explains that the letters ASIC sent out to licensees in May asking them to provide a list of products on which they received grandfathered remuneration was a case of them getting a baseline to measure the extent to which commissions will be passed on.
“We’ll be continuing to monitor this over the next 18 months until 2021 when the ban is likely to come into place,” she says.
Another issue for the regulators is the proliferation of accountants operating under ‘limited’ licenses to provide SMSF and ‘class of product’ advice. Many of these advisers are licensed by the SMSF Advisers Network (SAN), who have gone from 33 advisers in 2016 to over 1000 today, or Easton Investments, who have 855 advisers under license. These two represent the fifth and sixth biggest adviser groups in the country, which has forced ASIC to pay close attention.
Apart from imposing license conditions on SAN for “serious compliance concerns”, Bird says ASIC hasn’t found a lot wrong with these providers. Some guidance was provided to accountants around compliance, she notes, and they did at one point identify “inaccurate and out-of-date information” on websites, but after conducting a project to find out if accountants were providing unlicensed advice – “that’s something we hear quite often” – they found nothing untoward.
“That was actually quite a comprehensive program and we didn’t find systemic concerns about the provision of unlicensed SMSF advice,” she adds.