ASIC defends actions against Commonwealth

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ASIC has gone public regarding its approach to the systemic issues at Commonwealth Financial Planning Limited (CFPL).

The regulator released its main submission to the Senate inquiry yesterday, and in defending its actions against CFPL, it says that FOFA has made substantial ground – but not enough.

Problems at CFPL stemmed from “a sales-driven culture based on a conflicted remuneration structure and an environment where, in some cases, advisers failed to act in their clients’ best interests”, ASIC said in its submission.

However, the regulator says that despite securing $50m in compensation, banning seven advisers, and changing the manner and culture of advice provided by CFPL, ASIC is still being criticised for not taking an active role in the matter.

“This view overlooks the wide range of other regulatory tools that we commonly use – a number of which we were using in the CFPL matter – in response to whistleblower complaints and wider concerns ASIC had about CFPL.

“The view that we were inactive also disregards the fact that we do not generally publicly comment on whether we are looking at a matter until we have begun civil or criminal action.”

ASIC says it was already engaged with CFPL at the time that the whistleblowers approached it, but acknowledges that it “could have and should have spoken to the whistleblowers earlier, sought more information from them and…provided them with some assurance that ASIC was interested and active in the matter…”

ASIC says that “poor financial advice practices were at the heart of the problems in CFPL”.

It says that it has been concerned about the quality of financial advice for a long time, and as a result, has taken a strategic approach to focus on the larger players in the industry.

On average, ASIC calculated that it would take 0.8 years to cover the top 20 AFSLs with high-intensity surveillance. The next 30 would take 1.8 years. The remaining 3,344 AFSLs authorised to provide personal advice are primarily reactive surveillances, as are the 1,395 AFSLs authorised to provide general advice only.

In its defence, ASIC says that it can only achieve what it is resourced to do. According to its annual report, ASIC’s budgeted staff and supplier costs totalled $341.2 million. The costs were broken up into:

·         Enforcement – 39%

·         Registry – 24%

·         Surveillance – 19%

·         Engagement – 8%

·         Policy advice – 4%

·         Guidance and education – 3% each

ASIC says that although FOFA reforms should go a considerable way to improve the quality of advice, it is still pushing to improve:

a.       The competency of advisers – by introducing a national exam and higher qualification standards

b.      The ability of ‘bad apple’ advisers to freely move within the industry – by mandating reference-checking practices and record-keeping

c.       The fact that AFS licensing regime focuses on entities to the exclusion of their managers or directors – ASIC is seeking greater powers to stop people operating in the financial services industry

  • Rob on 5/11/2013 12:36:59 PM

    James comment re the Macquarie Counsel now working for ASIC is a real concern if true. I hope he sold his Macquarie shares to ensure "best interests"

  • James Howarth on 4/11/2013 6:50:39 PM

    ASIC does not have a standard application form for Financial planners after 10 years. What have they been doing?

    They did not even know what was meant by simple financial adviser and asked if I would deal with electricity derivatives.

    ASIC are clearly unemployable lawyers, except of course the x general counsel for Macquarie, who I suspect is on secondment and representing Macquarie.

  • James Smith on 4/11/2013 11:32:03 AM

    Further to Peter Corrie's comments how is it that the industry funds are still able to advertise superior investment performance based on their own assumptions re fees etc that they control and are not subject to accountability ? The outlawing of ads that infer superior future performance should be the coalitions first priority. They were illegal before the labor government came in to power for good reason.

  • PETER CORRIE on 2/11/2013 7:32:28 PM

    If you study "Socialism" you will see that the terms and practises they use are anti-business and anti-capitalist. Practises used by Labor for the last 6 years .
    The underhand and undercover practises of Surveillance, Shadow shopping, Spying and Whistleblowing are practises that you would expect in Russia not here. Consumers/clients can explain to advisers or a Complaints tribunal if they think they are being disadvantaged or have been provided with inappropriate advice and in response any issue can be easily rectified. Complaints by clients are few and far between for me or my colleagues who have been in the industry for either a short or a long time and I don't believe this is unique to us.
    Conflicted remuneration is another term and method they use to try and reduce choice, standardize and control prices and incomes. It is a very anti-competitive term or method practised . They criticize a sales driven culture, what business do they think we are in, without sales and incentive nothing happens .
    Somehow the industry, including all parties, is going to have to stand up to these practises by ASIC and over regulation,compliance and restrictions by FOFA or they will never stop but continue to drive Financial advisers/planners out of the business and discourage newcomers. Political pressure certainly needs to continue but experience shows that it is a slow process once something has been introduced and legislated by parliament.
    These activities outlined are not doing anything positive for our business or reputation, creating further mistrust and lack of confidence amongst consumers.
    Whatever happened to co-operation?

  • Warren on 1/11/2013 2:24:07 PM

    Have a look at the Contracts advisers with CBA dealerships have to sign - unconscionable is the legal word.
    Under circumstances where they do not get volume they can cancel the contract without giving reasons - leaving an adviser to find another dealer or get a licence (if he can afford the PI Insurance) or get out of the Industry - guess what happens to the business he has written - called orphan and is used to prop up salary advisers.Once again Tony (Federal) or Anthony (Fair Trading NSW) have a look at the top end of town.

  • James Smith on 1/11/2013 2:13:48 PM

    This clearly demonstrates that the big institutions are not ready for intra fund advice.
    The regulations need to go back to the fundamental principles of advice being provided by qualified financial advisers and governed by established professional standards. Intra fund 'advice' is a contradiction in terms that creates false expectations. It needs to be banished to protect consumers and to protect the advice profession from being falsely represented

  • Rob on 1/11/2013 10:21:57 AM

    Point c is a very good point made by ASIC. I would be interested to know whether the real culprits ie the managers who devised the remuneration structure, are still working for the bank or even other organisations in the industry. If I was having a bet I would say they are still there and were probably promoted for their "success". I am not sticking up for the individual advisers who happily wrecked their clients lives, but it is plain as day that reward influences behaviour and a poor reward system will attract the wrong type of recruit in the first place.

    Small AFSL holders ( you know, the ones that are not allowed to call themselves independent) are entitled to look at the Commonwealth, Macquarie and numerous other fiascos and conclude that too big to fail is alive and well in Oz.

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