Consumers call for harsher adviser penalties

by |

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