Sterling collapse occurred due to policy not regulation

While the corporate regulator has an oversight role and some may conclude that it should be able to prevent things like the Sterling collapse, it is a policy failure issue rather than regulatory failure, according to Tony D’Aloisio.

The former Australian Securities and Investments Commission (ASIC) chair and current Perpetual chair, said during a parliamentary hearing about the Sterling Income Trust that the problems that arose from the collapse was an issue of the policy that allowed markets to operate freely with minimum intervention.

“The problem with registered managed investment schemes and ASIC being the same with its oversight role, it leads to a conclusion that ASIC should be able to prevent these things. I think the committee should examine that issue very carefully,” he said.

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“It's a serious policy issue that we have, and we had it in 2010. And more of it's going to occur, as interest rates are low and retail investors are searching for income for their retirement, and having money in term deposits is not an option.

“So, they're going to look at these products. This is, you know, a real issue. And I'm grateful that you're looking at it.”

D’Aloisio said the ASIC legislation worked in allowing free markets to come in with products offered to groups like mums and dads but there were protection options.

“You can ban certain products because they’re to risky and involve the family home and you just ban them. But that’s very hard for a regulator and government policy to do that in the free markets theory we’ve been operating in,” he said.

“Then there’s allowing it with really strong regulatory oversight. The problem with strong regulatory oversight is that it tends to come in after something goes wrong. It is very difficult for regulators to look at all the products that are in the market and try to anticipate where they could go wrong. They don't have the resources and the policies are not set up there, so that that doesn't work.”

D’Aloisio suggested what could be done was to improve the advice given to people prior to making the investment.

“You put the pressure on getting that advice and I've called it ‘risk discovery advice’. I think that puts you in a much, much better position as a retiree but it does not eliminate it [the risk] completely,” he said.

“A lot of those retirees, I think if they'd been advised about the risks of a long-term investment in Sterling was to meet their rent over a considerable number of years, it's unlikely with proper advice that they would have invested in it.”

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And the reason so many consumers don't get proper advice is because ASIC has vilified and persecuted professional advisers to such an extent that consumers have been scared off or priced out.

Wow Tony wonderful comments as a former ASIC Advice Killing regulator.
90% of retirees can’t afford Real Advice Tony because of your ASIC approach to massively over regulating & killing access to Real Advisers.
Even as a former ASIC over regulator you still seem to have no idea of the real world problems you have helped cause. Or you chose to continue to stick your head in the sand and refuse to accept ASIC are a huge part of the unaffordable Advice mess.
So bloody frustrating are these bureaucratic regulatory types. One day they may even start to listen to Real world Advisers :-/

I was introduced a client to provide advice on her surplus of funds after she'd invested in Sterling.
As a matter of course I reviewed the offer she'd received from Sterling - I even went to one of their intro' / spruik evenings to get the feel of the deal). Mainly it was promoted by people with good intentions and sincerity - but no matter how sincere, if the deal is wrong, then it means you're just sincerely wrong (blind leading the blind).

What the media has never said (maybe didn't understand) is that 'at its core'...
The retirees were handing over their life savings to go into business with a real estate agent. The life savings went to a trust whose sole business was to buy rent roles. These are the guys from the 'ArmstrongJonesPropertyTrust' days from 30 years back (yeah, been around that long) and their stated intent was to create the biggest ever book of rent roles - which is a reasonable ambition by itself, but don't put the grannies at needless risk to achive your own aims.

The grannies were correctly told the savings were being depositted to an ASIC authorised investment operated by a 100% legit AFSL holder - everything was arranged with great rigor and diligence - top effort!
The problem was the nil diversification - do you really want to risk your life saving to the local realtor to go buy rent roles?

This deal only got up by having the perfect trifecta of very desperate people + very low financial literacy + an unbelievable offer (You promise me a brand new home 'rent free for the rest of my life').

This debacle would not have happened if the regulator had caused Sterling investors to make their decision via an advisory professional issueing a statement of advice and and who's prepared to put their PI cover at risk. If this deal was real, then paying $5,000 for an SOA to get rent free accomadation for the rest of your life would be cheap and if the SOA says Don't Do It, then paying $5,000 to protect your life savings is money well spent.

FYI - I see there'd be nothing wrong with Sterling's product for someone who's an absolute property hound and loves the idea of owning a rent role and is happy to embrace that sort of risk.

Tony D’Aloisio, the former Australian Securities and Investments Commission (ASIC) chair is repeating again what he said back in 2010 with the Timberwolf Scandal where A$1 billion in Australian superannuation was lost when Goldman Sachs sold off (trading in) their own securities (using false data to be relied upon by advisers) in advance of the GFC collapse and Tony in 2010 blamed external advisers. He is unconscionably biased at blaming external advisers and not institutional product managers who benefited but were never charged with criminal negligence causing damages. Tony should be criticised for deceptive conduct for falsely accusing advice and external advisers who never received truth in product manufacturer's action, because product manufacturer's employ conflict of interest corporate lawyers to hide the truth. ASIC is stacked with corporate lawyers who will not bite the bullet, because they fear they will not get a job with financial institutions after leaving ASIC. So very ironic Advisers get blamed for conflicts of interest, when we were paid free market commissions from competing industry life companies. In USA 2010, SEC prosecuted Goldman Sachs over TIMBERWOLF scandal (see ABC 4CORNERS report) and it paid US$ millions in compensation, but A-sic never lifted a finger because Tony (ASIC Chair in 4CORNERS INTERVIEW) blamed external advice. Where is Tony working now? He is Chair of Perpetual to continue with his lawyer's deceptive conflict of interest of blaming external advice - it is his career peak achievement. Why did the group of 12 NSW Shire Councils win their Case against S&P Ratings Agency and ABN AMRO? It was because A-sic was not involved. In this Case, Professor Stephen Gray (UQ Finance) gave evidence that showed S&P Ratings Agency deliberately flawed their own calculations with intent to earn fees from issuing false AAA ratings that were relied on by NSW Shire Councils. It was world first landmark Judgement by Judge Jagot in the Federal Court of Australia. How many Finance Professors does A-sic employ without a lawyer's conflict of interest? probably none ... I wish a litigation funder would take on the TIMBERWOLF SCANDAL to pursue the lost $1 billion in superannuation (criminal acts are not subject to the Statute of Limitations) and hold to account, including those who had the legal authority to take action in the public interest but neglected to do so, and compensate those who suffered loss and loss of subsequent earnings conscionably.

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