Why an ASIC product-intervention power should be welcomed

5 May 2017

Financial services product manufacturers should be prepared to stand behind their offerings and ensure they are directed to the right consumers by the right people, Mike Taylor writes.

There is much to be said for the Australian Securities and Investments Commission (ASIC) being given product intervention powers if it gives the regulator the ability to ensure that product manufacturers stand appropriately behind their product offerings.

Over the past decade, adviser groups have complained that much of the adverse publicity which has swirled around financial planners has been the result of product failure rather than planner misconduct and, to a degree, ASIC’s deputy chairman, Peter Kell, has acknowledged this.

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Giving evidence before the Senate Economics Committee inquiry into consumer protection in the banking, insurance and financial sector, Kell explained the reasons behind ASIC’s desire to be given product intervention powers.

In doing so, he reiterated the regulator’s desire to impose a responsibility on product manufacturers and their distributors to ensure the products they are selling are fit for purpose and appropriate to the consumers to whom they are being sold.

“There should be a process for ensuring that they get to the right people – who might not have an appropriate understanding of the risk or financial situation that makes that product the right one for them – and firms should have in place systems and accountability arrangements that enable them to do that clearly,” Kell said.

In doing so, the ASIC deputy chairman then bluntly declared that one of the problems the regulator had typically encountered over many years was “that if something goes wrong you often have the product manufacturer pointing the finger at the distributor, such as a financial adviser, saying ‘It wasn’t us, it was the way it was sold’ and then you have the adviser, pointing the finger back at the product manufacturer, saying ‘It wasn’t us, we just sold the product; it was the way it was designed’ ”.

Kell said there was an unwillingness to take responsibility and a lack of accountability around ensuring that the customer got the right outcome.

Kell’s evidence to the Parliamentary committee was both highly accurate and highly relevant. Over the past two decades there have been numerous instances of manufacturers not wanting to stand behind their products when they failed or ran into trouble. The sale of agriculture managed investment schemes, leverage and highly structured products come quickly to mind.

Further, while some of those products were arguably mis-sold, commissions and other incentives suggest some manufacturers were less than fastidious in ensuring their offerings were both fit for purpose and properly targeted.

While some people may argue that giving ASIC product intervention powers will stifle innovation, there is a substantial counter-argument based on consumer protection and, ultimately, industry reputation.

The bottom line is that while the industry’s reputation has been hurt by poor financial planning practices it has equally been damaged by products which have been poorly manufactured and misdirected.

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Good call Mike. This move by ASIC to monitor the product manufacturers is good news for the financial advice industry.

Important article, Mike. You are right. It is far more important to anticipate problems and prevent them because consumer protection is a bi-partisan issue and many of the issues are global in nature. This is one of them : https://www.businessinsider.com.au/chart-5000-years-of-interest-rates-20.... This is why it is an important global issue: http://5starinnovation.com/will-the-global-fintech-and-blockchain-hubs-s.... It is also why Money Management should be front and centre leading this debate. It is not an issue of who gets the political credit for fixing the problem, but getting on with the solution before it is a disaster. The global FinTech and Blockchain Hubs have already been alerted.
Mike, do you think that the Banks have a fiduciary duty for interest rate management for borrowers in the current situation with record low interest rates and record debt levels? I would be interested to hear your views.

Keep up the good work


John Cosstick

Agree 100%. This is the only way to guarantee protection of the public. Experts should be employed or the function outsourced.

Hi Chris. Thanks for that view with which I agree, as you probably guessed. The question is how to get Mike to take it on board and run with it. What is your suggestion?


John Cosstick

Hi John, maybe you should be suggesting this to the associations, Mike is a editor of the magazine hasnt got time to follow up all this stuff for us, not his job to lobby or run with things we want him to...thats our associaitons role, the AFA FPA etc...best of luck great to see your positive comments been good reading them.

There should be a risk grading or colour coding system for each product assessed by experts and paid for by the product provider which the public can easily understand. This puts the onus squarely back on the purchaser where it should be.

Hi Chris. Thanks for that comment. Regards.

Hi TJ. Yes. You are absolutely correct. Which is the most receptive to this critical reform FPA or AFA ? The global FinTech Hubs & Blockchain Hubs have already been alerted: Will #Fintech And #Blockchain Solve The Rising #InterestRate Crisis For Variable Rate Home Loan Borrowers? dld.bz/fJefq Pls Rt from @InnovationAtoZ.

Best. John.

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