ASIC ‘calls time’ on disclosure reliance
A joint-report issued by ASIC and the Dutch Authority for Financial Markets (AFM) highlighted both the limitations and the dangers of an over-reliance on disclosure as a consumer protection mechanism. The media release (19-279MR) confirming their long anticipated position is accompanied by REP 632 Disclosure: Why it shouldn’t be the default.
“It’s time to ‘call time’ on disclosure as the default consumer protection. It’s not the ‘silver bullet’ once thought, nor should it be relied upon as one. Disclosure can and has backfired in unexpected and harmful ways”
— Deputy Chair, Karen Chester
We’ve never been sold on disclosure as an effective consumer protection mechanism (read: The Limitations of Disclosure) and our own Dutch regulatory expert has long held a similar position. We’ve long believed that the better advisers eschew disclosure in favour of informed engagement and, given that FASEA have taken a similar approach by advocating for ‘free, informed and prior consent’ the profession’s over-reliance on disclosure was unlikely to endure.
Thankfully, we now have regulatory support for better solutions.
ASIC Discloses problems with SMSF advice
ASIC’s position on disclosure may seem, in retrospect, slightly inconsistent with ASIC’s previous media release urging consumers to question whether SMSFs are right for them (19-277MR) . The release caused consternation for some advisers, but the ones apparently most concerned about ASIC’s release are advisers who would never inappropriately recommend SMSF.
No-one should be surprised that ASIC have observed, or are legitimately concerned that, SMSF are sometimes misrepresented and mis-sold. In fact, there’s little in ASIC’s release that is in any way controversial given that it echoes previous findings of the Productivity Commission and ASIC’s previous reports REP 575 SMSFs: Improving the quality of advice and member experiences and Report 576 Member experiences with self-managed superannuation funds.
Given their recent admission that disclosure doesn’t (always) work, it’s strange that any adviser would notice or react to ASIC’s position.
Cynicism aside, we’d recommend that you read the release so that you appreciate the eight ‘red flags’ that ASIC (and most compliance experts) believe signal inappropriate SMSF advice.
- Low superannuation balance, and limited ability to make future contributions;
- Client preference for a simple superannuation solution;
- Stated client preference to delegate management of the SMSF to the adviser (or to a related party of the adviser);
- Stated client preference to have someone else make all of the investment decisions;
- Client is ‘time poor’;
- Client is financially unsophisticated;
- Client is a bankrupt or prohibited person; and
- Client has low levels of financial literacy.
These factors are well worth reviewing (plus, the SMSF Factsheet is pretty dope).
download smsf factsheet
Thinking about failure
It was an article about a brewery, and a subsequent discussion about PR, reputation and accountability, that prompted us to look more closely at the Royal Commission’s Final Report.
It’s lost none of its impact but it, and the idea of tying Corporates’ liability to a positive duty to prevent failure, led us down the rabbit hole of assessing culture and measuring the effectiveness of compliance arrangements.
Along the way, we stumbled on this excellent HBR article “Why Compliance Programs Fail—and How to Fix Them”
APRA and IOOF
By now you are aware that APRA’s ‘best interests duty’ test case against certain IOOF was dismissed as unpersuasive’ and ‘fundamentally inadequate’ by the Federal Court. APRA have been ordered to pay costs and may yet appeal.
If you’d like a better understanding of the case we recommend Minter Ellison’s brief summary.
In their short post titled “Not proven (but not necessarily an endorsement either)?”, Kate Hilder and Mark Standen address APRA’s case and explained why it failed. There are some key insights for every licensee to note.
Of course, if you have both the time and the energy, you can read the judgment.
In a previous article on Compliance Reviews, we wrote about biases, preferences and errors of thinking that get in the way of an accurate and effective compliance review.