185 bad apples sour planning strudel

The recent Australian Securities and Investments Commission report on how large financial institutions oversee their advisers has served as a sobering reminder of the challenges still ahead.

Australian Securities and Investments Commission (ASIC) deputy chairman, Peter Kell issued a very sobering statistic when discussing the findings contained in the regulator’s latest review of how large financial institutions oversee their advisers — some 185 advisers are under regulatory scrutiny.

That is right. 185 advisers have been or are the subject of surveillance by ASIC and we can expect to be hearing more about the consequences over coming months and perhaps years.

All of this matters because it will represent a backdrop to the financial planning industry’s on-going attempts to become a profession. At the same time as planners invest time and money into raising their educational qualifications, the negative publicity generated by the industry’s bad apples seems set to continue.

What can the industry do about this? Well ASIC has indicated that a starting point would be banks and other financial institutions continuing to tighten up their practices around compliance and breach reporting.

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When answering media questions immediately following the release of the latest ASIC review, Kell made clear that while the banks and financial institutions were certainly headed in the right direction, there remained a degree of inconsistency that was undermining their efforts.

He said the regulator remained concerned about the degree to which the industry was identifying its bad apples and the quality of breach reporting — something which was underscored by the fact that a significant number of advisers were under surveillance.

Where breach reporting was concerned, consistency was clearly an issue with Kell suggesting that sometimes firms were getting it right and sometimes they were getting it wrong.

“If we were writing a report card on this, it would not be one you’d be proud to show your mother,” he said.

The specific areas ASIC said needed improvement included:

• Failure to notify ASIC about serious non-compliance concerns regarding adviser conduct;
• Significant delays between the institution first becoming aware of the misconduct and reporting it to ASIC;
• Inadequate background and reference-checking processes; and
• Inadequate audit processes to assess whether the advice complied with the ‘best interest’ duty and other obligations.

All of which seems to diminish the rhetoric which has surrounded many of the recent initiatives announced in the industry, not least those of the Australian Bankers Association (ABA) which has made much of its efforts including its new industry-wide hiring protocol.

To be fair, the industry has not been idle in seeking to remove the bad apples — something which was recently evidenced by the Financial Planning Association’s (FPA’s) banning of a member for professional standards breaches — but there is clearly a long way to go.

ASIC’s scrutiny of 185 advisers in an industry with around 12,000 people who are eligible to claim to be an adviser puts the problem into context, but the industry knows only too well how this can serve to undermine consumer confidence.

Advisers embracing higher education standards and greater levels of professionalism represents a part of the answer but, as the ASIC report reveals, the banks and other financial institutions need to turn their recent rhetoric into action.