The regulator’s perspective

Speech by ASIC Chair Joseph Longo at the AFA Hybrid Conference 2021, hosted by the Association of Financial Advisers, Tuesday 21 September 2021.

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Introductory comments

Thank you to the AFA for the opportunity to speak today.

Before I begin I want to acknowledge Helen Morgan-Banda on her appointment as CEO of the Association. And the AFA itself on its 75th anniversary. A significant milestone indeed.

Reflecting on a milestone lets us see how far we’ve come.

And collectively, the financial advice profession has come a long way and achieved many things in 75 years. Especially for the communities and consumers that you serve.

So first we look back. And then we look forward.

As the Chair of ASIC it’s my job to focus on the future.

And today I’ll give you my outlook – the regulator’s perspective – on the industry.

  • First, I’ll look at current challenges.
  • Second, I’ll explain what ASIC can – and is – doing about these challenges.
  • Third, I’ll conclude by suggesting how industry can play its part.

Facing challenges together

What I want you all to really understand is the priority that I and the Commission are placing on the issues facing your industry.

It is something I spoke about at my first Parliamentary hearing in June.

What you do is critical to the economy. And we have to work together to make sure as a sector you are successful.

As things stand, I am optimistic about the future.

I am under no illusions about the scale and complexity of the issues facing financial advisers and the industry as a whole.

Nor am I under any illusion that these issues will be easy to resolve.

But resolve them we will, as long as we each play our part.

COVID-19 pandemic response

Let’s now look at those issues in turn.

The first and perhaps most complex issue facing industry is how best to navigate the pandemic while safely leading your clients through it as well.

When it first hit our shores early last year, the pandemic response became ASIC’s top priority.

Here’s what we’ve done so far:

  1. We limited the regulatory activity that industry had to respond to as much as possible. We consulted with industry to identify areas where we could provide support.
  2. We provided temporary relief and guidance to improve access to affordable and timely financial advice for consumers impacted by COVID‑19. This included measures allowing shorter-form Records of Advice to be given to existing clients, instead of Statements of Advice. And you were able to provide advice more quickly.
  3. We provided guidance to industry in relation to the raft of Financial Services Royal Commission law reforms that commence this year. For example, in June we published responses to FAQs about ongoing fee arrangements in Information Sheet 256. We also updated Regulatory Guide 78 on the new breach reporting reforms that start in a few weeks’ time.
  4. We listened to industry concerns about the law reforms due to commence in the next fortnight. In response, we publicly announced that we will take a ‘reasonable approach’ in the early stages of the reforms, provided industry participants use their best efforts to comply. And I made it clear that if a participant does not use their best efforts to comply, and the result is actual consumer harm, ASIC will enforce the law.
  5. Last but not least, I recently created a dedicated ASIC unit to identify and implement changes to how we administer the law, with a focus on minimising regulatory costs for businesses.

Working with advice associations like the AFA and financial advisers more broadly has greatly assisted ASIC in our efforts to remove roadblocks so more Australians can access quality financial advice.

We must work together to get there.

Unmet advice needs

This leads me to the next challenge I’d like to discuss today. How can more Australians access quality financial advice?

A healthy and well-functioning economy must include access to affordable advice.

Our new Corporate Plan clearly sets out our three priorities for financial advice – unmet advice needs, the single disciplinary body and the Life Insurance Framework review.

I want to take this first priority – unmet advice needs – off the page and into real-life context.

Picture a young Australian couple on a modest income. They have one large mortgage, two small kids, three superannuation funds and they’re unsure about their life insurance arrangements.

They need financial advice to ensure they’re adequately protected, and their superannuation is working for them.

They don’t know where to look.

They don’t think they can afford it.

They don’t know what ‘good advice’ consists of.

This couple, like a majority of consumers in Australia, recognise the value of financial advisers and want access to affordable personal advice.

But like the average Australian, they don’t know how to assess the quality of the advice offered.

Here comes the plot twist.

They may have gone online and sought to educate themselves via a financial influencer or ‘finfluencer’.

ASIC is aware of the fact that the pandemic has created the perfect conditions for finfluencers to flourish. The result is the conflation of general and personal advice, which is now in a state of flux.

We are watching this evolution closely.

We are making it clear to social media content creators and the public that there is a clear legal difference between advice and opinion.

And we are working to enable industry to counterbalance opinion with professional, good-quality advice that is also affordable.

Which leads me back to our couple and their family.

How do you help them?

Impediments to advice

Let me start by explaining what ASIC is doing to help you, help them.

Last year ASIC looked at unmet advice needs and the impediments industry faced in providing quality affordable and limited advice to consumers.

The feedback we received from industry consultations was that:

  1. You want shorter, easy-to-access and simpler guidance from ASIC.
  2. There are barriers to providing limited advice, including a lack of clarity about the regulatory requirements.
  3. The cost of advice is increasing due to rising overheads and regulatory costs, cost in relation to preparing Statements of Advice and licensees taking an overly conservative approach to compliance.
  4. You think that strategic advice could benefit consumers, but again cited uncertainty of requirements.
  5. Although most of you don’t provide digital advice, or intend to provide it in future, you do see great potential for technology to support the advice process.

The next step is for ASIC to deliver initiatives to assist industry overcome some of these impediments and meet the needs of Australians.

The proviso is that we do what we can – resources and regulatory role permitting.

We will continue to engage with industry as we work towards helping you meet the as-yet unmet advice needs of consumers.

We’re looking at creating a Financial Adviser Hub on our website so the relevant content is easier for you to find.

We’re also looking at adding extra guidance in the form of an example Statement of Advice, and an Information Sheet about Records of Advice.

As an aside, during these industry consultations ASIC received feedback on areas of potential law reform.

We passed this feedback to Treasury to help inform the Quality of Advice review it is conducting.

ASIC’s role and priorities

At the start of this speech I said I’d explain not only what we are doing for industry – but what we can do.

From the very beginning ASIC’s role has been to administer and enforce the Parliament’s laws.

For the financial advice industry, our work takes a variety of forms:

  1. We provide guidance to industry on how we will administer the law to assist entities to comply.
  2. We provide advice and input to Government on the application of the law, on law reform and other inquiries.
  3. We consider and grant, where appropriate, applications for relief from certain legislative provisions. Although, as I’ve stated before and as you may already know, ASIC has limited power to modify or grant exceptions from much of the law that applies to financial advice.
  4. We conduct thematic surveillances to address issues impacting on the quality of financial advice.
  5. We negotiate compensation programs following wrongdoing. This includes programs to compensate clients for Fees For No Service conduct, and inappropriate advice.
  6. We seek to protect the public and deter misconduct by bringing court-based enforcement action when we see breaches of the law. We also protect the public through adviser bannings, licence suspensions and licence cancellations.

As the Chair, it is my job to ensure ASIC administers the law to good effect, and in accordance with Government policy.

I ask you to keep this in mind when discussing issues relating to Chapter 7 of the Corporations Act.

We recognise that Chapter 7 is complex. And I note that the Australian Law Reform Commission has been tasked with its review, which we very much welcome.

How industry can play its part

I’ve spent the last 10 minutes talking to you about what ASIC can – and is – doing to assist industry.

Now what about you?

This has to be a two-way street.

So I’d like to leave you with three suggestions:

  1. You can continue to focus on the interests of your clients.
  2. You can continue to cultivate and advance your industry’s value proposition.
  3. You can comply with the spirit of the new laws.

Conclusion

I recognise the past year has been a difficult one.

We know you have faced additional challenges by the COVID-19 pandemic and renewed lockdowns.

But as I said earlier, I am optimistic about the future of the industry. As long as we each play our part.

Financial advice is crucial – even more so during the current pandemic.

And while I know that the introduction of new professional standards has caused some angst among the adviser community, I am confident that these changes will be beneficial to advisers and clients.

So as we look toward the future, the lines of communication must remain open in both directions.

Not just for the financial health of Australians, but for the benefit of the industry as a whole.

I believe that if we continue to engage effectively, and remain focused on our shared goal, we can help Australian consumers achieve greater economic prosperity.

Thank you.

Last updated: 21/09/2021 12:00