Check against delivery

I'd like to begin by acknowledging the Traditional Owners of the land on which we meet today, the Dharug and Gundungurra people, and paying my respects to Elders past and present.

I am really pleased to be here in this exciting post-lunch slot to discuss ASIC’s priorities and current work in relation to financial advice.

I thought I’d cover three key areas:

• Our focus and our priorities in enforcement.
• Our progress in bedding down some new reforms, including in relation to reportable situations and internal dispute resolution.
• Our broader work in supporting good retirement outcomes for Australians.

Before I joined CHOICE as CEO around 12 years ago in my last role, I had little to do with debates about financial advice regulation.

As I was going for the role, the FoFA [Future of Financial Advice] reforms had recently been settled, after many months – if not years – of debate and inquiries through Parliament. But I remember saying in one of my job interviews that, I suspect that the debate about advice regulation isn't over.

That was a bit of a throwaway line at the time – but I didn’t realise at the time how prescient that observation might be.

In the 12 years since then, we’ve seen:

• the debate about repealing the FoFA reforms
• the Life Insurance Framework reforms of 2018
• the establishment of FASEA and implementation of the Professional Standards Reforms
• the Financial Services Royal Commission and the wave of reform, both broadly across financial services and specific financial advice that came out of it
• the disbanding of FASEA
• the Quality of Advice Review
• and now, the Delivering Better Financial Outcomes [DBFO] process that is underway now in response to the Quality of Advice recommendations.

That’s a lot of change in 12 years, almost all of it subject to heavily contested debate.

And maybe we shouldn’t be surprised about that.

Access to good advice – safe advice – is important to people who need it. While not every Australian will want or need financial advice, when they do, they need to be able to receive advice that they can trust.

Also the number of people who need advice is growing. Three million Australians will become eligible to start drawing upon their superannuation in the next decade – on top of the six million who are already at or above superannuation preservation age^[1]. And as the superannuation system continues to mature, more of those people will be retiring with larger balances.

That reinforces the importance of ensuring that protection for consumers of financial advice is appropriate – because in the worst cases, when financial advice goes wrong, people can lose their entire retirement savings, and that can be devastating for the individuals involved.

And from my work on these issues over time, nothing brings that point home more clearly than having talked to people in that situation – people at or around retirement, who suddenly found themselves with no retirement savings, having thought that they had set themselves up for maybe not a super comfortable retirement, but one that would be adequate, and then instead discovering that they're probably going to be dependent on the age pension, with poor advice having played a significant role in that. That’s the risk we’re always trying to protect against.

The industry today

I reflected on the last decade or so of reform – where does that leave the industry today?

I think there are some signs of stabilisation.

As discussed this morning, while there has been a significant contraction in the number of advisers since the introduction of the professional standards reforms in particular, there are some signs that this trend may be easing.

There were exactly 15,663 advisers registered with ASIC as at 1 March 2024, and while this is around 9,000 less than the long-term average prior to 2019, it represents a decline of only 36 since 30 June 2023 – so there's some signs that trend may be stabilising.

We’ve also got the experienced provider pathway coming online and new financial advisers undertaking their professional year, so I think these numbers will be interesting to watch over the next few years.

But at the same time, it seems like there might be more structural reform on the way.

While the detail of the Delivering Better Financial Outcomes proposal to introduce a new class of adviser is still being worked through, it is likely to lead to a significant expansion in the number of firms that offer some kind of advice and the number of people involved in providing it.

Super funds will play an even bigger role in the provision of advice – and as is the case currently, this will likely involve a range of insourced and outsourced models. And of course, there is growing speculation that some of the major banks may make some kind of return to wealth management.

In the context of all that, ASIC is taking a close interest in the DBFO reforms, as is the case with any reform to laws that we administer. We support the Government’s objective of improving access to high quality and affordable advice to Australians.

We don’t make government policy decisions or design regulatory reform, despite what you might sometimes read in Professional Planner. That is a job for the Government, guided by Treasury advice. But we do work with Treasury of course through the process, as do a range of industry bodies, bringing to the task our many years of insight and experience in overseeing and regulating the financial advice industry.

And once these reforms have passed through the Parliament, we’ll be considering where there’s a case for regulatory guidance to provide greater certainty around the way in which we interpret and apply the law.

ASIC’s focus

With that context of further reform on the way, I thought it might be useful to talk about ASIC’s priorities, in terms of enforcement and regulation.

While you know us as the financial services regulator, and you see the detailed work we do in relation to financial advice, we are also Australia’s corporate, markets, and consumer credit regulator.

We've got one of the broadest remits of financial services or corporate regulators in the world. We have got finite resources, and that means that we need to prioritise what we focus on and how we use those resources.

In doing so, we aim to focus on the most serious threats and harms we see in the system as a whole – to ensure we are directing our resources to where they are needed most.

Setting priorities and understanding those threats and harms is quite a detailed process. It involves analysing the multiple sources of data available to us, talking to our peer regulators internationally, talking to industry bodies, looking at the reports of misconduct that come to us and also talking to our advisory panels, which include a number of industry representatives.

Retirement outcomes is one of our strategic priorities for the current financial year and while priorities for 2024–25 will be announced early in the new financial year, I can confidently say there will continue to be a strong focus on supporting good retirement incomes for Australians.

Enforcement

Alongside these strategic priorities, we also set annual enforcement priorities. These typically cover the calendar year, with the 2024 priorities having been announced at the ASIC Forum in November last year.

Of interest to this audience, the current enforcement priorities include:

• misconduct resulting in the systemic erosion of superannuation balances
• compliance with the reportable situations regime, and
• our enduring priority of systemic compliance failures by large financial institutions resulting in widespread consumer harm.

In pursuing these priorities, we are incredibly active. As our Chair [Joe Longo] frequently says, we are in court rooms around the country almost every day of the legal year, often in many court rooms on the same day, pursuing cases against individuals and firms, small and large.

The laws we administer carry a broad range of potential criminal, civil and administrative consequences – from issuing public warnings through to terms of imprisonment. We use this broad toolkit in a calibrated and proportionate manner to address misconduct.

So far this financial year, we have removed, restricted, or banned 49 people or companies from providing financial services across a range of sectors (figures to May 29, 2024) – the equivalent of almost one every week.

The circumstances in each case vary – including insolvency, dishonest conduct, providing advice that’s not in the best interests of clients, or providing inappropriate advice – but each case fundamentally represents a threat to trust in our financial services system.

We take a risk-based approach to our enforcement activities. We’re always looking to target our legal efforts to the matters that can have the broadest reach or send the most powerful deterrence message.

That obviously sometimes involves action against larger firms, where misconduct may often lead to larger scale harm to consumers. You’ll see that demonstrated in several recent actions against:

• 'licensee for hire' firm Lanterne Fund Services^[2] for breaching its AFS licence obligations (although I would say Lanterne was large in the number of authorised reps operating under its banner but ultimately only had one full-time employee, so not sure if we should classify as small or large – large certainly in terms of its impact on consumers)
• RM Capital^[3] for failing to ensure its authorised representative, SMSF Club, did not accept conflicted remuneration, and
• Mercer Financial Advice^[4], for failing in its fee disclosure obligations and charging fees to customers it was not entitled to charge.

Sometimes, this involves actions against smaller firms or individual advisers – for instance, our actions against David Valvo,^[5] Brett Gordon^[6] or Mark Cooper.^[7] In fact, half of the companies and individuals we have removed, restricted, or banned this financial year had an estimated business revenue of less than $1 million.

I make this point because there’s often a suggestion which I think was reflected in some of the discussion this morning that we don’t take action to address this conduct by individuals or smaller firms. This data demonstrates that we can and do take action against a broad range of firms and, where appropriate, against individuals involved in the management or governance of firms involved in misconduct.

Reform

Reportable situations regime

One of the enforcement priorities that I mentioned a moment ago was compliance with the reportable situations regime.

This regime was a key recommendation of the Financial Services Royal Commission. It was intended to be a key source of regulatory intelligence for ASIC to feed into the decision making around where we apply our resources, so it is really important to us that it operates effectively.

The regime has now been in effect for almost three years – but the proportion of licensees that have submitted a report is very low,^[8] which suggests some still may not be complying with their obligations.

There has been little improvement on this since our first report on this in 2022,^[9] which is one of the reasons we have made it an enforcement priority for 2024.

Our surveillance on this remains active and ongoing but we have spent the past two years warning licensees to lift their game – and my message today is that we’re not going to spend the next two years doing the same.

Where we find evidence of non-compliance, we will take the appropriate action – including enforcement action, where necessary.

IDR framework

Another key new source of data to inform our work is in relation to internal dispute resolution [IDR] data – although I would acknowledge that the IDR reporting regime is much newer.

Smaller financial firms were required to submit their IDR reports to ASIC for the first time this year.^[10]

This means on 1 January, all in-scope financial firms – around 8,700 in total – were due to report Internal Dispute Resolution data to ASIC.

This provides us – for the first time – with a picture of how the full spectrum of Australian financial firms are dealing with consumer and small business complaints under their internal dispute resolution procedures – the good, the bad, and everything in between.

We intend to use it to inform our work – but consistent with the recommendations of the Ramsay Review, which proposed these reforms, we also intend to publish some of that data.

Now that all financial firms have commenced reporting, we expect to publish some observations from the initial data collections later this year, as well as providing feedback to industry, to improve the quality and consistency of reporting.

Over time, you should expect the breadth and depth of data that we publish to increase, so we encourage you to be doing what you can now to make sure that your data is accurate and comprehensive.

Experienced provider pathway

The other key reform that I want to briefly touch on is the experienced provider pathway.

That’s important in the context of some of the big structural reforms I noted earlier, because it is obviously a mechanism to retain experienced advisers in the industry.

We have recently issued new guidance to support advisers and licensees to access the pathway.^[11]

We have also updated our IT systems, so from 1 July, licensees can begin lodging notifications where they have received a written declaration from an adviser who is relying on the pathway. I hope that that is a relatively simple process but as always, our team is happy to answer any questions you may have as you engage this process.

Regulation

Before pausing, I thought it might be helpful to touch on a few aspects of our recent regulatory work that have attracted a lot of attention and interest.

Choice super report

The first is our work on choice super products – articulated in Report 779 Superannuation choice products: What focus is there on performance? released in February.

As I noted earlier, ensuring good retirement outcomes is a strategic priority this year – and one that will continue into next year.

While good retirement outcomes aren’t all about financial advice, obviously advice has a big role to play – and Report 779 shows that there’s still more work to do.

So, in this report, we examined the practices of advisers, licensees and superannuation trustees in situations where choice products had persistently underperformed against the benchmarks disclosed in their product disclosure statements (PDS).

I just want to emphasise that point – this was about the benchmarks set in the product’s product disclosure statements and it was about persistent underperformance, not over one or two years.

We found in some cases, clients were not told their investment options were persistently underperforming and that there may have been better alternatives available.

To be really clear, it is not our view that underperformance over a period should automatically result in a recommendation to switch products. That’s not feasible – and it’s not always going to be in the best interest of clients.

But persistent underperformance should be identified and considered – and we were looking for evidence that was happening. For licensees, that means having processes in place to detect and deal with persistent underperformance in a timely way.

That can include ensuring that licensees’ advisers are detecting and addressing underperforming options held by their clients, and that licensees treat performance as a primary criterion when approving products for use by advisers or managing approved product lists.

There’s quite a lot in this report tailored to licensees – we did take a look at all the distinct players in that system – so if you haven’t already looked at this report, I encourage you to do so – it’s available on the ASIC website.

Trustee oversight of fee deductions

We also recently looked at the role of superannuation trustees in monitoring fee deductions for financial advice. Given the attention this report has attracted, I thought I would provide a bit of context.

Obviously one of the key lessons from the Financial Services Royal Commission was about how inappropriate fee deduction with inadequate oversight can eat away at members’ balances. On the flip side, some of our recent work has shown how vigilance by trustees can protect members from unscrupulous operators, particularly with regard to superannuation-switching cold-calling practices.

That’s why we are focusing on trustees and calling on them to improve their oversight practices – calling on them to take a risk-based approach to protecting their members’ interests.

To be really clear – we are not asking trustees to check every piece of advice – that would not be practical. Nor is it what the current law or what the proposed changes to the law require. We could not have been clearer on that point. But we are asking trustees to consider what controls and assurances they need to put in place to enable them to comply with the law.

To illustrate the point, during our year-long surveillance on this issue, almost $1 billion in fees were deducted from almost half a million member accounts - but trustees only reported around 1,500 checks of advice documents.

Three of the 10 trustees we looked at failed to check any advice documents on a risk or random basis – and that shows there is a way to go to strengthen member protections.

The reforms to section 99FA, the laws applying to advice fee deductions, are still working their way through the Parliament and are being considered by a current inquiry. While that is underway, we are happy to continue to make our view on the impact of those reforms clear and when they have passed, we will consider providing more formal regulatory guidance.

Conclusion

In conclusion, I suspect the process of reform for how financial advice is regulated will never be completely done – for the simple fact that financial advisers live and work in an ever-changing world.

The Government and ASIC are always going to be laser-focused on ensuring the policy settings and regulations are right for the many people who trust their advisers, and for the financial advisers you authorise to help them.

To that end, licensees play a critical role in the system, so ASIC welcomes the opportunity to engage in forums like this one.

Thank you to Conexus for the invitation to speak with you today – I look forward to taking some questions.

 

^[1] Margaret Cole and ASIC – Jane Eccleston - Speech to the Conexus Retirement Conference | APRA

^[2] 24-071MR ASIC action results in $1.25 million Court imposed penalty against AFSL 'licensee for hire' firm | ASIC

^[3] 24-038MR ASIC succeeds in conflicted remuneration case against financial advice licensee

^[4] 23-314MR Mercer to pay $12 million penalty for misleading representations and fee disclosure failures | ASIC

^[5] 24-064MR Former Sydney financial adviser charged with dishonest conduct

^[6] 24-113MR Former Queensland financial adviser Brett Gordon banned following fraud conviction

^[7] 23-350MR Former Queensland director banned by ASIC for seven and a half years

^[8] 23-288MR ASIC releases second publication on insights from the reportable situations regime

^[9] 22-295MR Breach reporting: ASIC publishes insights from the reportable situations regime

^[10] 23-117MR ASIC updates the implementation timeframe for the internal dispute resolution data reporting framework

^[11] FAQs: Relevant providers – Accessing the experienced provider pathway