Can advisers and ASIC get on the same page?

Announcing the forthcoming release of what would become the regulator’s Consultation Paper 332 on promoting access to affordable advice for consumers, ASIC commissioner Danielle Press seemed to suggest the regulator was hoping for a quick fix that would solve the problem of soaring advice costs.

“Out of this process [the industry] could come up with what are the five things you need, what are the bite size things we need government to do here to move it forward,” Ms Press told the FSC’s Future of Advice Summit in October.

“If you can get some alignment on that and clarity on what the industry needs, there is a supportive regulator and government is supportive of those things if they can see the right model.”

While the pragmatic sentiment of Ms Press’ comments were admirable, the subsequent industry response, which has been flowing through in submissions from the major industry associations this week, has suggested it’s unfortunately just not that simple.

There are some responses that suggest a refresh of the way ASIC puts together its regulatory guidance would be helpful. The FPA noted the regulator’s newer RGs have been more “user friendly” and that the old ones may need to be updated. The AFA also put forward the idea that more guidance should be delivered in formats such as video which could allow a closer application of the rules to a real-life advice scenario.

But a lot of this also comes down to the perception among the advice community that ASIC – among other regulatory voices in the industry, including FASEA and AFCA – is not that interested in helping advisers to learn what is right and wrong, and more interested in catching them out.

Take the safe harbour provisions, which have evolved from a guideline to advisers in meeting the best interests duty, to a compulsory box that must be checked in order to pass an audit, regardless of the circumstances. This is mentioned in the FPA submission – which calls for a repeal of the provisions – as being potentially used against advisers in situations “where a simpler consideration of the matter would demonstrate that the financial advice satisfied the best interests duty”.

The AFA’s submission suggests such hardline approaches have worsened since the royal commission and the adoption of the ‘why not litigate’ stance by ASIC. The idea that enforceable undertakings or industry bans were somehow a ‘weak’ method of punishment, the association argues, did not gel with the advice community which was already facing tough consequences for compliance breaches.

“Demands for ASIC to be more assertive and litigate in preference to enforceable undertakings ... seemed to result in a regulator who was already very vigorous and assertive becoming even more so and seeking to litigate before consideration of other option. It is important to appreciate the fear that this mantra has created, on top of what was already a very apprehensive advice community,” the submission states.

The AIOFP echoed the same sentiments in its submission, suggesting that “fearing an ASIC investigation for minor breaches has induced advisers to implement all compliance requirements to avoid possible prosecution”.

In other words, it’s not the rules itself but ASIC’s attitude to enforcing the rules that is the problem. Or to quote the famous philosopher Dennis Denuto, “it’s the vibe”.

It’s easy for regulators, compliance departments and licensees to get caught up in this culture of fear, driven by historic media headlines of both legitimate wrongdoing in the advice space by the major institutions, and genuine criminals seeking to do nefarious things with investor money – which, as last week’s developments around the Melissa Caddick case will attest, will continue to occur regardless of how much regulation is implemented in the industry.

What is more difficult to remember is that behind all these hard line stances and crackdowns are real people, most of whom are trying to run a business as best they can and who are profoundly affected by not being given the benefit of the doubt. Stories of advisers having to give up work due to stress, or worse, are becoming more prevalent in the industry, a timely reminder that, as the AFA submission suggests, most advisers are simply vulnerable small business people like those in any other industry.

So how do we solve this problem of enmity and distrust between advisers and regulators? Hopefully ASIC will give some thought to this when they collate the submissions for this consultation. Some constructive ideas have been put forward by many of the industry bodies, including establishing a specialist adviser unit that practitioners can go to for case-by-case compliance rulings, conducting regulator roundtables between ASIC and the advice community, and a greater focus on proactive on-site visits from the regulator that seek to educate and assist advisers and compliance staff, rather than enforce.

With a potential cleanout of senior leadership also on the cards given chair James Shipton’s involvement in the recent expenses scandal, this also holds the promise of a new broom at the regulator. Given the recent feedback from industry, and the government’s focus on making advice more accessible, culture change has got to be at least a possibility.

Sarah Kendell, editor, ifa