Consumers call for harsher adviser penalties

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ASIC might be happy that most stakeholders rated it as ‘excellent’ or ‘good’ at holding organisations to account, but consumers say it still has some work when it comes to advisers.

Of the 1468 stakeholders surveyed, only a quarter agreed that financial advisers (23%) and fund managers (26%) have integrity. An even lower proportion (20%) agreed that the industry manages conflicts of interest effectively.

“I don’t believe most of them put integrity as their main priority,” one consumer said.

When asked whether ASIC was doing a good job at holding advisers and fund managers to account, only 30% of stakeholders gave the regulator an ‘excellent’ or ‘good’ rating. Consumers thought that ASIC needed to be tougher in its penalties.

“With ASIC the bite is more like a playful puppy nip, it’s there but not near hard enough. I don’t think fines are enough, we should be like the USA, not a case of will you go to jail, but a case of for how long,” said another consumer.

Another said that if ASIC came down on people “with a big stick” it would make investors feel more confident in investing in the market.

Industry associations felt that the “big stick” approach would be counter-productive. For them the idea of a public display – as they said “a head on a pole” – could make that sector of the industry less, rather than more, engaged with ASIC. Instead, they argued that fines and loss of licence are significant penalties in many cases. Some also argued that it was more appropriate in some cases for transgressors to be “rehabilitated”.

Regardless of which segment they were in, most stakeholders felt that successes and wins by ASIC worked effectively as a deterrent.

So what is it that makes up the ‘integrity’ that consumers feel is missing?

  • Having high standards

One consumer interviewed said “discharging your obligations in accordance with their charters, governance requirements and regulations means operating with integrity.”

  • Managing vested interests

According to this view, advisers and other gatekeepers have “distractions and temptations” which can steer them off course, and it is only ‘integrity’ which steers them back.

An industry association representative said the issue was, “Doing the right thing even when it is not profitable.”

  • Not hiding anything

For some, integrity was about being open and transparent, with nothing hidden. Trailing commissions and “kickbacks” received by financial advisers fell into the ‘not transparent’ category, with consumers saying they created a temptation to see the customer as simply someone to make money out of.

  • Being honest

Honesty was also crucial to integrity, which also means not intentionally misleading others. “A simple definition for me of integrity is how you behave when no one is watching you,” one consumer said.

Do you agree with the views of consumers or the associations? Share your thoughts below.

More stories:

History damaging advisers' future

PI increases unjustified

Associations learn from mistakes with ASIC

  • carl on 12/09/2013 11:48:15 AM

    I think James has got it right in that were those in the survey connected to an adviser or not?

    The second point is that the industry funds putting out ads. re.commissions etc have contributed to the wrong impressions.

  • Pat on 12/09/2013 11:40:02 AM

    Scott, why would ASIC "target the smaller boutique firms"? Are you suggesting they are going to fabricate claims to gaol advisers from/owners of boutiques?

    I would assume that ASIC would target those giving non-compliant, unlicensed advice rather than focus on the size of the firm from which the advice is provided.

    I believe this is a case of "if you are doing the right thing, you have nothing to worry about". You will not go to gaol for markets going down.

  • James Smith on 12/09/2013 11:38:42 AM

    Agreed Scott. There is a distinctly unlevel playing field that is not being acknowledged. Advisers are required to take responsibility not only for their advice, but also whether their processes conform with what the regulators perceive to be required. On the other hand, big institutions can say whatever they like in their advertising and management are allowed to hide behind their corporate structure rather than be held responsible for their false promises or the poor behaviour of their employees. What is more, the current FOFA legislation proposes that they can exercize a get out clause to not follow the regulations advisers need to follow via mechanisms such as intra fund 'advice' and misleading TV ads with 1300 numbers to encourage decision making without advice. What message does that give to consumers and advisers. ie Institutions go for your life and do whatever it takes to increase your FUM and we'll soften the rules to help you. Advisers if we can find that you have not followed any of the rules we keep making for you to follow, we will throw the book at you. Consumers be wary of advisers but trust the big institutions because ????

  • James Smith on 12/09/2013 10:19:25 AM

    There is no doubt that consumer opinions are influenced by the media and comments by industry representatives if they are not in an advice relationship. The irony is that in the adviser world, the key measure of success is referrals from existing clients. The PR strategies that the institutions rely on are largely ineffective as the experience does not live up to the promise. Unfortunately, the majority of industry representatives have a poor understanding of what is involved in maintaining client relationships because they have no experience with clients. Consumer feedback is also not differentiated from those that have an adviser relationship with those that don't. Clearly consumers that have never had a relationship with an adviser have little to base their opinion on. It would be far more beneficial to encourage consumers to seek out good advisers rather than use the examples of poor behaviour of some to encourage clients to go direct to the big institutions. The elephant in the room is that clients that want good advice and service can get that if they shop around and the promises that the big institutions are making that they can service clients directly has absolutely no basis. There is a distinct lack of accountability for both the promises institutions are allowed to make and the basis of legislation proposed. This is a major oversight given neither the legislators nor the institutions have experience with the clients they are trying to attract/protect.

  • Investor on 12/09/2013 10:07:30 AM

    Why wouldn’t they have a poor view of advisers. The public has been bombarded with negative comments regarding advice for 6 years under Labor, who had a huge vested interest in having the public use their Industry funds. No doubt there is room for improvement. There always will be. But, what the Labor government fails to understand is, that consumers have a choice. If I don’t service my clients, or my clients are convinced they can do better else were they are free to move. Unlike employees that are forced to use Industry funds through their award arrangements. I believe the clients have fared well through the GFC and Labor used the GFC to feather its own nest.

  • Paul levy CFP JP on 12/09/2013 9:53:04 AM

    WOW! Let's give advisers public floggings, tar and feather them and deport them to some deserted island where all crooks should go!

    At what point do all those who offered comment distinguish between advisers who are crooks (thankfully the very small minority) and honest, hard working, ethical, professional advisers whose only intention is to serve their clients well and build long term relationships based on mutual trust, respect and dignity (thankfully the overwhelming vast majority of advisers)????

    No ASIC regulation has ever caused a crook to exit the industry! Crooks simply adjust bu appearing to become more compliant.

    Instead, onerous regulations are causing many honest hard working advisers to exit the industry because for them, it has become impossible to remain profitable or cope with all the time consuming and costly hamstringing compliance requirements thrust upon our industry with little regard for common sense.

    In almost all situations, a crook is only identified and punished after the fact that he or she has acted innapropriately and caused consumer loss.

    It is my opinion that the best way to affect meaningful change is from within our industry by:
    • having only ONE representative body to give power to our unified voice ( I fear this will never happen because each body purporting to represent adviser's needs all have their own individual agendas).
    • forcing all advisers to join that body.
    • forcing all advisers to strive for CFP or the AFA equivalent.
    • only allowing CFP' or AFA equivelant to give advice in the first instsnce.
    • forcing all non CFP's or AFS equivelant to serve a meaningful period of time as an apprentice to a CFP or AFA equivelant.

    We as an industry need to take responsibility for our own industry and work together to achieve a trusting and respected profession through a long term mentoring, training leadership process designed to turn out well adjusted and honest professionals less likely to offend.

    No one will ever stop the crooks from infiltrating our ranks. Just as there is the odd crooked doctor, lawyer, accountant etc

    I remember and yearn for the days when We were respected for who We were and what We did.

    Sadly those days are gone, as is evidenced by the comments made in the preceding article.

  • Scott F on 12/09/2013 11:07:15 AM

    Unfortunately if ASIC starts dealing out harsher penalties, they will most likely target the smaller boutique firms who are far easier prey then the bigger banks and insurance companies. Do you really think ASIC is ever going to take away a big companies AFSL, or start putting their executives in jail? Far more likely the poor little guys would end up bearing the brunt as we cant afford costly legal battles to fight back. Its a huge concern that consumers feel we lack integrity, we have a job to do to change that opinion.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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