Presidio's Jason Cook and Anne Graham from Story Wealth

Recent efforts from the regulator to ease the compliance burden are being met with scepticism from advisers, who say the continuation of ‘lookback’ compliance requests is precluding advisers from writing the shorter, simpler statements of advice ASIC is touting.

Earlier this week Professional Planner reported on ASIC Commissioner Danielle Press’s comments at the Parliamentary Joint Committee’s hearing into ASIC oversight, where she revealed the regulator was consulting with the industry on a project to lower the cost of advice delivery.

Press said that understanding the impediments advisers face in providing scalable and affordable advice is “probably the most critical thing” ASIC is doing in advice right now.

Many believe that while ASIC’s intention might be well placed, its promise to reduce the cost of advice doesn’t gel with the ongoing ‘lookback’ program, which involves auditing licensees for advice files up to ten years old.

“All that lookback stuff with ASIC has meant that advisers are looking over their shoulder,” says Story Wealth’s Anne Graham.

While broadly supportive of ASIC, Graham believes talk about reducing the cost of advice doesn’t hold water when ASIC’s regulatory process involves systematically raking advisers over the coals. Advisers won’t make their SOAs shorter and simpler when they are terrified of being investigated, she explains, so the cost to serve is going nowhere.

“The expensive part is documenting and creating file notes, you need to leave the breadcrumbs,” she says. “You probably do it in the extreme because if you can’t prove it, it never happened.”

According to Presidio Group principal adviser Jason Cook, there’s “a lot of fear” in advice.

“A lot of my peers are living in fear of the implications of these lookbacks, particularly those from larger licensees,” he says.

Cook says his firm recently had to increase their price 15 per cent “across the board” to accommodate bloated compliance costs, which not all their clients stuck around for. “We’re just going to have less clients and the clients we have will be charged more,’ he says.

The compliance issue extends beyond the Corporations Act, he believes, with FASEA’s Code of Ethics also bringing several grey areas into play that make it hard for advisers to provide compliant scaled advice. “My experience is that it’s next to impossible,” he says.

The Fold Legal’s Katie Johnston

More lookbacks, more fear

According to Katie Johnston, a solicitor at The Fold Legal, ASIC’s lookback activity is still causing shockwaves and prohibiting advice in a number of ways.

“The ‘lookback’ is definitely top of mind for people purchasing businesses,” she says, adding that the number of lookback requests “seems to be increasing”.

Johnston – who works in advice business acquisitions – says buyers are concerned about lookback requests and increasingly asking for contractual protections for past compliance issues.

“It’s coming out in terms of people being risk averse with their acquisitions and doing more due diligence and bolstering contracts to try and provide the purchaser with better protection if there is a lookback request,’ she says.

Too great a risk

Advisers say ASIC’s attempt to provide a prescriptive guide to compliance with their 2017 ‘example’ SOA (RG90) is more of an indication of how out of touch they are than anything else.

The guide is reasonably comprehensive and touches on the major requirements for a compliant SOA. According to Graham, however, it can’t be taken seriously. ‘Everyone laughed at it,” she says. “Sometimes ASIC just gets it wrong.”

PMM Group’s Aaron Walters

Graham reckons the problem is that ASIC might call the example SOA compliant, but lawyers and compliance specialists within licensees will tell you that it is far from defensible. “The licensee says the legal guys need more,” she says.

‘Got to any compliance guy and ask them if it would pass,” says PMM Group adviser Aaron Waters. “Lawyers know this won’t hold up in court, and that’s the disconnect.”

Walters says it’s just not worth making his SOAs any less comprehensive than they currently are. “There’s still too great a risk of not being compliant,” he adds.

Legislators or regulators?

During the PJC hearing Commissioner Press seemed to indicate that she is not wholly unaware that there is a disconnect between ASIC’s view of compliance and that of advisers.

“We hear a lot that the cost is too high but we’re not sure where those costs are coming from,” she stated.

Indeed, the Assistant Minister for Superannuation, Financial Services and Financial Technology, Jane Hume, called 80-page SOAs “kind of crazy” during a recent fireside zoom chat with Conexus Institute CEO David Bell.

“We probably need to bring down the cost by making financial advice simpler,” the Senator admitted.

The Comissioner said she wasn’t sure whether the disconnect was a “regulatory issue or a legislative issue”, but the regulator was trying to get to the bottom of it.

Press, who is appearing at Professional Planner’s Best Practice Forum on August 4, went on to note that ASIC is consulting with the industry to ascertain if guidance is clear enough or whether licensees may be taking a different view to ASIC.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at tahn.sharpe@conexusfinancial.com.au
5 comments on “ASIC disconnected from compliance reality, advisers say”
  1. Avatar Peter Heading

    It would be a nice change if ASIC went to the “coal face” of the industry for feedback rather than just the usual large licensees and associations who are typically clouded by their own vested interests and somewhat removed from the realities of where our time is spent.

  2. I have to agree with Jeremy and David.

    And then add to that the shambles that is FASEA.

    You might as well have set an early retirement date for many of us: 31/12/2021.

  3. Avatar David French

    First ASIC accepts no responsibility for its role in the freeze in bank lending, caused by matters related to the Wagyu and Shiraz case (which it lost – TWICE), and now it says it does not understand how their vacuous decrees can possible push up the price of providing advice (not to mention their disingenuous “cost recovery” apparatus). ASIC is broken as an organisation. It’s consumer protection provisions should be moved to a special division of the ACCC, licensing moved to a special licensing bureau, and the rest of it drastically restructured.

  4. Avatar Jeremy Wright

    Look back from some Licensees goes back to 2008.

    There is a sledgehammer approach from all sides and advisers are being crushed under the weight of overzealous Regulators, the Government who to this day still do not understand the implications of what they have done and Licensees who are paranoid and will jump to the whims of ASIC without questioning the logic or commercial feasibility of all the demands they are being placed under and then in turn, to defend themselves, just put their advisers through the meat grinder.

    ASIC have said understanding the impediments advisers face for scalable, affordable advice, is probably the most critical thing, though ASIC are a main cause of why the industry is in turmoil.

    No-one is game to question ASIC and ASIC admitting they do not know what the problem is, with no-one capable of telling it the way it is, means we will continue on the merry go round.

    The standard defence of Licensees, is to utilise Lawyers and Compliance drones who do not understand or care about the stress they cause and because they make their living from complexity, it is like putting a fox in charge of the hen house.

    Cook said he has had to increase his fees 15% to accommodate bloated compliance costs, the end result, less advisers which will result in higher fees again.

    This is exactly what has happened in the advised Life Insurance area.

    It is now so complex, it has become unviable to write up new clients, due to cost blow outs, reduced revenues and a compliance nightmare which has led to the point where advisers are too scared to seek new clients.

    The result, thousands of advisers exiting, a reduction in new business revenue to offset claims, the Insurers resorting to increasing premiums, clients cancelling due to the increases and the Life Insurers solution? Increase premiums again and the vicious cycle continues.

    We are in a very bad state of decline and yet the solution is staring everyone in the face.

    It is simple, though would be a threat to the Lawyers, compliance and education vested interest entities, who would prefer the entire industry to collapse and 80 percent of Australians no longer being able to attain advice, rather than their golden revenue streams being interrupted.

    The industry is in the greatest danger of collapse and it does not need to be this way.

    When a team of Lawyers (ASIC) are told by other Lawyers that their SOA is indefensible in Court, does that not clearly show that the system is broken?

    Talk to any client in this country and they will tell you that they do not understand what is in most of the SOA as it is written in “Legal speak”.

    ASIC admitting they do not know where their rising costs are coming from, pretty much sums up the whole problem.

    We have an army of Public Servants, Lawyers, Internal Compliance people and an opaque, convoluted Regulatory system with every man and his dog having an opinion, which immediately creates confusion and the dreaded word INTERPRETATION needing to be included in the process.

    Another word, SIMPLIFICATION, should be the catch cry.

  5. In advice preparation we would spend approximately 25-33% of the time making sure we’ve “ticked the boxes”, file noted anything not nailed down explained in excruciating detail in the SoA absolutely everything.

    In the current regulatory environment and guilty till proven innocent mindset of the regulator and AFCA it is asking for trouble in the future to do anything else.

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