Grandfathering – ASIC relied on sample-based data

The Australian Securities and Investments Commission (ASIC) has admitted that it only had sample-sized data when it made some of its initial pronouncements on the negative impacts of grandfathered commission arrangements for financial advisers.

In evidence to the Parliamentary Joint Committee on Corporations and Financial Services, ASIC executive, Joanna Bird sought to defend the regulator against suggestions from Queensland Liberal back-bencher, Bert Van Manen that the regulator had no comprehensive idea about the situation before it had begun collecting data as a result of an instruction from the Treasurer, Josh Frydenberg.

Bird said that ASIC had done earlier work where it had looked at grandfathering but that there had been huge variations because the exercises had been “just samples”.

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“We thought grandfathered commissions were having a negative impact,” she said.

She said it was therefore wrong to suggest that ASIC had not done any work, but it was now doing that work in an extremely comprehensive manner because the regulator had received a direction under the ASIC Act from the Treasurer.

“But that is not to suggest we had no data prior to that,” Bird said.

Van Manen placed a number of questions on notice to ASIC on the issue of grandfathering including the total amount invested in grandfathered funds, how many advisers would be impacted, the total amount of grandfathered commissions, the total amount of volume bonuses and shelf spaced fees and what consideration had been given to clients who couldn’t be moved because of factors such as exit fees, Capital Gains Tax, insurance etc.

Former Productivity Commission (PC) deputy chair and newly-appointed ASIC deputy chair, Karen Chester told the committee that much more work had been done by the PC which had identified the extent of grandfathered commissions and which had then been used as a resource by the Royal Commissioner, Kenneth Hayne.


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Failed to do any research, failed to know the product, failed to identify client goals and providing advice on a financial product without being property qualified other than a law degree - it's good to be the king (ASIC).

in other words they just heard the word commission and decided it must be bad.

Would Josh Frydenberg confirm as to whether he did or did not previously become directly involved in a dispute over financial advice provided to a family member and whether that singular experience has negatively influenced his opinion and attitude toward the financial services sector ?

This surely couldn't be a repeat of ASIC Report 413 Review of Retail Life Insurance could it ??????
You know, the report we had to have and manipulate in order to achieve the intended outcome and objective.

We heard all about the impact on clients from poor advice and poor regulation and oversight from ASIC. No one really wants to pay attention to the impact on advisers from poor oversight and decisions made by regulators or politicians. We are now seeing the impact on clients of Bank financial planning arms as they leave the advice world and orphan their clients. We are seeing adviser practices that will be decimated by grandfathering issues and many clients will not necessarily engage under a fee for service regime and will not receive advice relating to the most critical issues in their financial lives. Where is best interest duty in all of this? Does it only sit with advisers?

Just like LIF.
ASIC checked a few files and branded everyone as bad advisers and change the whole system.
Perhaps ASIC should be the group doing the Ethics course first.
Congratulations to Bert Van Manen for calling ASIC out.
The heat needs to be put on them for destroying a segment of the industry...self employed planners!

ASIC knew their ‘research’ was not comprehensive, they thin sliced the data set to confirm an outcome. I think it’s called sampling/selection bias.

Talk about Groundhog day, ASIC the biggest bunch of of clowns who just keep on giving. This was exactly the same thing that happened in the change to commissions and responsiblity period they pushed for because of all the so called rewriting of insurance saga and then after it was changed they admitted it wasn't as bad as they thought, and that they had not done any major research.
How do these morons keep getting away with this ,destroying businesses and lives. Frydeberg is another story ,he has done nothing to help the industry, just MIA.

Calling all commissions to be conflicted remuneration (negative bias), basically can only occur in a one-off transaction sale (socio-legal research). However, financial planning has been receiving trail commissions which is an alignment of interests between the investor and the adviser. If the investment goes down in value, so does the trail commission. If the investment goes up in value, so does the trail commission. Therefore, the alignment of interests between the investor and the adviser is (positive bias) predicated for the investment to rise in value over time, otherwise the adviser will advise the client to switch for better investment performance and more trail commission in the alignment of interests. The alignment of interests is critical Substance over Form. Adviser Services Fees function in the same method.

not quite, the conflict that concerned them was, the situation where would an adviser suggest using investment funds to pay out house debt if it was in the clients interests, or look to preserve and even increase the gearing because it was in the advisers interests. Storm financial etc really did a lot of damage to gearing as a strategy.

Agreed, Storm Financial kicked off the decade long kicking of financial advisers even though the vast majority of advisers do not recommend strategies such as the Storm model.
The banks were again up to their eyeballs in approving loans to Storm clients to gear into investments and their processes were driven entirely by greed and did not act in the best interest of their lending clients.
At the end of the day, if the banks had refused to provide the loan or strictly limited the loan to a 20% maximum of property value, the carnage of what occurred would not have set the precedent for very politician and regulator since to continually refer to Storm as the catalyst for a regulatory onslaught.
The source of investment funds was provided by the banks as the gearing and they had not ounce of consideration when lending up to 70-80% of a retired persons home to gear into the market.
The negligence of the lending institutions in combination with the proposed strategy was stratospheric.
But hey, the banks were slapped on the wrist and continued on their way.

Can I please opt out of paying ASIC levies?

" increase the gearing because it was in the advisers interests" ? When Storm Financial $x millions failed, commissions were blamed, not inappropriate planning and unethical advice principles, and the Federal Court fined the Directors $170,000 for loosing $x millions (proportionality??). This decision may seem inappropriate when Storm Financial failed in its fiduciary duties of inappropriate advice in the first instance, and should have been made to disgorge all profits on each inappropriate advisory activity. Secondly, the banks failed in their fiduciary duty and should never have loaned mortgages to retirees on the age pension (no cash to meet margin calls), banks should never have called in the loans to cause retirees to loose their homes, so banks were wholly culpable and should have sold down the portfolio to clear the loan, before the clients incurred negative equity on their homes, so banks after the event should have taken the loss on the clients' portfolios instead. Both Storm Financial and the banks were fiduciary failures for acting inappropriately. If the banks refused the loans in the first instance, it would not have blown up in the face of the financial planning industry, which was condemned as a whole, they shot the wrong dog. Storm Financial failed to manage their clients' exposure with an appropriate exit strategy. When there is no profit, clear the deck and wait for a positive trend before buying back in again.

Proof that ASIC run their shop based on their own ideology. Who cares about data & research hey. Just like LIF.

Yes I agree with Agent 18. Politicians lust over playing the Blame Game (C Bowen narrative) that deflects from their own failings cognitive in Domestic Governance.

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