With the Australian Securities and Investments Commission having fired a shot over the bows of the industry on the question of churn, the Risk Store’s Sue Laing argues that if churning really does exist as a major problem, the regulator has always had the weapons in its armoury to deal with the instances it identifies.
Having sat back and watched this issue churn around the press, the Financial Services Council and the Government regulators for months, I find it impossible to sit still any longer and not point out the elephant in the room.
Exactly 11 years ago this week the new Financial Services Reform regime was launched into its transition phase. One of the key platforms of the regime was the role of the Australian Financial Services Licensee in the whole consumer protection piece.
Not wanting to waste time and space on quoting the legs and regs, let’s just acknowledge in a nutshell that licensees were (and are) charged with not only the legal liability for the actions of their representatives – authorised or employed – but with the responsibility to audit those representatives’ actions and assess any shortcomings and address those shortcomings, be they in the form of actual breaches or just warning bells, by reaction and remedy.
Given that a key component of the new regime, the Statement of Advice (SOA) – the composing and delivery of which comes under the compliance audit view – is required to include a critical section (carried over from earlier Code of Practice regulations so not exactly a new concept!) on Replacement Policy Advice, isn’t it logical to assume this is designed to control the act of churning?
I’m sure we would all further agree that if this section is composed and presented accurately in each case, the licensee is facilitated in its audit tasks.
Unsuitable and/or unnecessary product replacement will, if the facts are correctly gathered and noted on the client file, be visible and should be easily detected for what it is.
On the assumption that so far I’m right, now let’s ask:
- As churning does exist (it’s factual, but doubtful that it’s in epidemic proportions), what action have the licensees of the perpetrators taken to stop it?
- Why has not the Australian Superannuation and Regulation Authority (ASIC), the all-seeing regulator, acknowledged that licensees (not just the advisers) are failing if they have found breaches during their own regulator audit processes?
- What has not ASIC suggested that licensees’ capacity to audit appropriately and accurately is in doubt?
- Why has not ASIC suggested, even once in all the press commentary we have seen, that one of the source areas of error and failure is the construction of that Replacement Policy Advice – and acknowledged a systemic failure of the system?
- Why are the licensees so silent on the issue? If they have uncovered culprits and proudly and responsibly dealt with the breaches and poor advice, why not say so and do their bit to reassure ASIC that the problem can be controlled with regulations and not with imposed restrictions or penalties, as we might expect ASIC to do soon if we can’t get our collective act together?
- Could it be that on up-front commissions, the licensees face their own conflict of interest in uncovering and controlling churners? Ouch – that one hurts.
- If this is really the case, then why can’t we all discuss this as a serious systemic failure regardless of the true extent of the lapsing and replacing?
These are serious questions and I for one would like to see some serious answers, before the baby truly does go out with the bathwater.
