Push for better regulatory enforcement not new laws: JAWG

The Joint Associations Working Group has warned that adding more regulation would have little impact in protecting consumers, arguing the Shield and First Guardian collapse saw existing laws breached.

In its joint statement on Treasury’s consultations on consumer reform post-Shield and First Guardian, the working group that covers the major industry associations argued that effective oversight and enforcement by ASIC and APRA remained critical to ensuring existing legal obligations and consumer protections operate as intended.

“The failures observed in Shield and First Guardian were not the result of a deficiency in the personal advice exemption itself, but rather instances of non-compliance with existing legislative obligations, together with broader issues relating to supervision by the AFS licensee and regulatory enforcement,” the group said.

“Therefore, removing or narrowing the exemption would be a disproportionate response that risks limiting access to legitimate financial advice while doing little to prevent the misconduct that Treasury is seeking to address.”

The statement was in response to three simultaneously run consultations covering the sustainability of the Compensation Scheme of Last Resort, trustee obligations and lead generators.

To mitigate the impact of lead generation, Treasury was canvassing industry views on whether to remove the personal advice exemption or to restrict it so that it only applies for advisers where they are offering products to existing clients or offering products other than superannuation products.

Anti-hawking rules were brought in after the Hayne royal commission to prevent the unsolicited sale of a financial product, but services (like financial advice) were exempted.

The proposals addressed two gaps in the law that lead generators allegedly used in the distribution of Shield and First Guardian funds.

Lead generators were able to skirt the law because they were offering a service, rather than a product. They also relied on getting leads via social media ads, often promoting a superannuation performance review that collected contact data.

Industry fund lobby group Super Members Council and consumer advocates Super Consumers Australia had called for changes to the law, but the working group opposed the proposed changes to anti-hawking laws.

“Removing or restricting the exemption would introduce friction and legal uncertainty into legitimate advice conversations, potentially discouraging advisers from raising related issues that are relevant to a client’s financial wellbeing,” the JAWG statement said.

The government had proposed adding waiting periods to inter-fund super switches, as well as banning advice fee deductions for super switching.

The group argued that adding waiting periods would only add cost and operational complexity to the advice process while doing little to address the underlying causes of the harms that led to the collapse, and that “unscrupulous operators” will simply adjust their sales scripts and tactics to account for a mandatory waiting period. 

The JAWG also opposed the proposal to prohibit advice fee deductions for switching-related advice.

“Assessing whether a member’s existing superannuation arrangement remains appropriate, having regard to their objectives, financial circumstances and needs is a fundamental component of comprehensive personal financial advice and good consumer outcomes,” the statement said.

“Measures that effectively discourage advisers from providing switching-related advice risk undermining access to financial advice and limiting consumers’ ability to receive professional guidance on one of their most significant financial assets.”

The group pointed out the anti-competitiveness of the proposal which would make it harder for people who didn’t have the ability to pay for advice with discretionary savings would in turn end up being stuck in under-performing funds.

JAWG supported the CSLR compensating for capital losses only, opposing ‘but for’ determinations which the government proposed removing from the scheme.

“It is not consistent with the concept of a scheme of last resort to compensate consumers for hypothetical investment returns, particularly where those amounts are ultimately funded by levy-paying entities that had no involvement in the underlying misconduct,” the statement said.

However, the group also expressed concerns about the cost of AFCA fees to the scheme, pointing to the $20 million in the FY27 levy which was 15 per cent of the total.

The group also supported the CSLR being given the power to offset other compensation payments received, as well as further recovery rights.

Furthermore, it supported Treasury exploring mechanisms to improve the recovery of unpaid AFCA determinations within corporate groups and related entities.

JAWG was made up of the Financial Advice Association Australia, Financial Services Council, Licensee Leadership Forum, SMSF Association, Stockbrokers and Investment Advisers Association, Boutique Financial Planning Principals Association, Chartered Accountants Australia and New Zealand, CPA Australia, Institute of Public Accountants and The Advisers Association.