Liberal Party MP Jason Falinski and ASIC Commissioner Danielle Press

The corporate regulator has been forced to explain the different independence disclosure obligations between asset consultants and financial advisers in a series of questions taken on notice by Commissioner Danielle Press at the Parliamentary Joint Committee on Corporations and Financial Services in November.

Liberal Party MP Jason Falinski hounded Press on the marketing of asset consultant Frontier Advisors, who provide investment advice to institutional clients like superannuation funds and insurers, as well as private wealth advisers.

“ASIC have rightfully made a lot of the term ‘independent’,” Falinski said.

After pointing out that advisers working for vertically integrated institutions like AMP, CBA and Westpac “can’t call themselves independent”, Falinski turned his attention to Frontier, who he said were “putting themselves out there as financial advisers and are calling themselves Australia’s leading independent financial advisers”.

After Press clarified that Frontier is a business that provides institutional advice, not retail, Falinski clarified that his real issue was with the group’s board of directors, which includes representatives and directors from HESTA, Cbus, AustralianSuper, First State Super and Aware Super.

“Is that sounding like an independent group of directors?” Falinski said.

Press pointed out that Frontier’s board is comprised of ownership representatives along with an independent director and an independent chair, then chose to take on notice whether Frontier “falls foul” of the independence requirements.

In its subsequent response, ASIC explained to the PJC that Frontier can use the restricted term ‘independent’ as long as they don’t receive commissions, volume-based remuneration, or other “gits or benefits from product issuers”.

Front of mind

The topic of independence disclosure is clearly on the minds of policymakers.

In response to a Hayne Royal Commission recommendation, last week the Assistant Minister for Financial Services, Jane Hume, presented a Bill that requires financial advisers who would contravene the Corporations Act by calling themselves independent to give retail clients a written statement “in the form described by ASIC” disclosing their lack of independence.

The change will require firms that accept commissions for insurance advice to disclose the fact to clients upfront, a move which may force some to reassess whether commissions-based insurance advice is worth retaining in their business.

It’s unclear yet who else will need to provide the disclosure, with some industry stakeholders estimating that the combination of managed accounts, insurance commissions and asset-based remuneration will affect 99 per cent of advisers.

Commonly understood

Confusion remains – in Canberra, at least – about the disclosure requirements of asset consultants as opposed to financial advisers.

After continuing his line of questioning at the PJC inquiry, Falinski seemed to conflate the two roles and again pointed to Frontier’s marketing. “It’s not like they’re hiding the word ‘independent’,” he said.

“Sorry, Mr Falinski, but an asset consultant is quite different to a financial adviser,” Press replied.

After ultimately asking Press to take on notice a request for a definition between the two service roles, ASIC provided a response on Friday explaining the disclosure requirements of retail financial advisers, which “do not apply to advice given to wholesale clients”.

The term “asset consultant” isn’t legally defined in the Corporations Act, ASIC advices, but is “commonly understood” to mean advice given to institutions.

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 [email protected]
2 comments on “ASIC separates advisers and asset consultants”
  1. Avatar Steve Blizard

    It’s worth reading the ASIC Reports on their website, in particular their review of advice provided BY Super Funds themselves, and Identifying and managing conflicts of Interest (ASIC Report 639, Page 20-22)

    • No.76. A fund that identified vertical integration as a key conflict told us (ASIC): The key conflict of interest is that [our advice providers] are employed [advice providers] (ie a vertically integrated model) and may therefor have conflicting interests, such as promoting [our own] products.

    • No.77. A fund that identified relationships with third-party advice providers as a key conflict told us (ASIC): The key conflict of interest is between the advisers being employees of a service provider to the fund and also providing advice to members of the fund.

    • No.78. A fund that identified paying bonuses to advice providers as a key conflict told us (ASIC): [Advice providers] are paid salaries by [the fund] and may be eligible for an annual discretionary bonus based on key performance indicators relating to compliance, service standards and business objectives.

    Meanwhile advisers are being hung out to dry under FASEA. Seriously.

  2. Avatar Billy Norman

    If 99% of advisers aren’t considered “independent”, perhaps regulators need to take a fresh look at the definition as it currently stands. Are they trying to say that 99% of the industry are ‘conflicted’ or even providing inferior advice? Are they suggesting consumers should seek out the 1% who are independent? If you are ‘independent’ does that automatically mean the advice is of a higher quality and the consumer will get a better outcome?

    What is the objective here?

Leave a comment