‘Environment of fear’: Advisers terrified of regulator action

Speaking at the recent SMSF Association Technical Summit, Allens partner Michelle Levy said one of the most surprising aspects she’s found in her role leading the Quality of Advice Review is the level of fear felt surrounding ASIC and AFCA.

“I am actually taken somewhat aback and, maybe I shouldn’t be, but there’s a real concern that very minor breaches or very minor things are going to lead to very serious consequences,” said Ms Levy.

“If you look at the cases that ASIC has actually brought, they are in the main quite serious issues so that surprises me and that’s a hard one to solve. How do you address fear? It's obviously having a big effect on what people do.”

Speaking on the same discussion panel, FPA chief executive Sarah Abood also agreed there is an "environment of fear that exists” within the financial advice industry.

“It's very much the case that advisers are literally terrified of forgetting a page of the SOA or something of that nature. Advisers and dealer groups have a genuine fear that their businesses will be destroyed and that their PI insurance will be broken because of something like that,” Ms Abood explained.

“That’s driven a lot of issues in the profession — not just the regulations themselves, which are complex and overlapping and in some cases duplicative, but also the fact that so many people are interpreting those regulations in a particular way and building into it into their process and systems the outcomes of experiences that they may have had in front of the courts or in front of AFCA.”

As a result, Ms Abood said advice templates are getting longer.

AFCA acting leading ombudsman, investments and advice, Shail Singh said creating fear is certainly not the objective of the AFCA.

“This fear factor is not ideal. We like to be predictable, we like to be consistent. We have to do what’s fair in the circumstances and we have a fairness framework to explain how we go about that,” said Mr Singh speaking on the same panel.

“I still am really surprised when there's an AFCA decision that's issued and a whole compliance department might change their systems and processes on the back of that one decision that was dependent on the facts.”

Mr Singh noted that there are compliance-focused groups that aren’t helping the situation.

“They will take that decision and say, ‘We need to do this, that and the other’ and I would prefer [advice firms] to come and talk to us about it. We'd be happy to explain the context of that decision,” he stated.

“Most decisions are based on their individual facts. If there are things that we think the industry could improve on, we will generally put out an approach paper on it and we will consult on that approach.”