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ASIC answers all of your FoFA questions

ASIC Commissioner Peter Kell talks to Wealth Professional journalist Donna Sawyer about FoFA and what you need to know about acting in your clients' best interest.

Video transcript below:

Interviewer:  ASIC Commissioner, Peter Kell, thanks for joining me.  Tell me what are the key issues that licensees are raising with ASIC right now?

Peter Kell, ASIC Commissioner
Peter Kell:  Well we are seeing quite a range of issues being raised.  After all it’s very broad based reform.  People are restructuring their remuneration arrangements, they are putting in place new IT systems, they are getting their new fee disclosure statements ready and they have questions in all these areas.  We are issuing guidance, so we have already issued our guidance around the best interests duty and scaled advice and we are following up with guidance around conflicted remuneration and codes and there are a lot of questions around all of these areas, how are they going to work in practice.  But generally we are finding that people are engaging in a sensible way and we are doing as much as we can to facilitate the readiness of advisors for FOFA and we have stated very clearly that we are going to take a very facilitative approach in the first 12 months of the regime.
Interviewer:  What is ASIC’s stance on the FSC’s proposal regarding life insurance commission claw backs?
Peter Kell:  We are always pleased to see industry trying to lift standards through their own self regulatory measures.  We will provide some comments when we see the final version coming through from the FSC, but if it’s successful in helping to deal with problematic churning then that has to be a good thing as a whole, that has to be a good thing for consumers and for the reputation of advisors in this area.  After all we do see some quite disturbing cases of churning and inappropriate switching, where consumers are clearly the losers and given that there is a carve out from the conflicted remuneration provisions under FOFA for life insurance, it is important for the industry looks at  how it can ensure good behaviour, good conduct, consumer focused behaviour in this area.
Interviewer:  What are ASIC’s main concerns when it comes to the Aggregator or the one size fits all business model?
Peter Kell:  We have seen problems with the one size fits all models in the advisory space.  You have issues arising where you have quite different types of advice businesses that have the same sort of compliance approach applied which might be work for one, but not for the other.  Where we have seen rapid growth as well, we sometimes see problems where there is sort of inadequate assessment of the, if you like how the business is travelling, that’s about to be acquired, that’s about to be purchased, have they got their compliance systems in place, have they got any problems, are they going to be appropriately brought into a larger business model.  At the end of the day, has the Aggregator got the capacity to ensure that the various advisors that work within its business are compliant and are doing the right thing by clients.  So are they able to track what’s going on, do they have a good understanding of how the whole thing is hanging together. Unfortunately we have seen some cases where that hasn’t happened and there has been really problematic advice provided as a result.
Interviewer:  Can you clarify how advisors can determine whether their clients are in a better position overall even if they are not financially better off?
Peter Kell:  Well that’s a good question.  How can an advisor understand when their client is in a better position, because it isn’t just about whether they are financially better off in some simplistic sense in the short term.  Let me give you two examples.  One that emerged during our shadow shop in 2012 was where a client came out of their consultation with the advisor with a much  better understanding of their financial situation, a much more realistic understanding of how much longer they were going to have to work, of how much money they needed for their retirement, of how they needed to deal with their debts.  So they came out with a much better understanding of how they were going to have to prepare their financial strategy going forward.  Another example is where we see consumers who are in a situation where their understanding of the risks that they are exposed to, through their financial strategy is, their understanding is actually at odds with the real risks that they are facing.  You get this misalignment and that can unfortunately lead to significant problems down the track, if that’s not corrected.  So one of the ways that a financial advisor can really add value is explaining very clearly those issues of risk to the client, understanding their risk appetite and aligning that with their actual financial means.
Interviewer:  ASIC Commissioner, Peter Kell thanks for joining me.