“Don’t hope for a life without problems. An easy life results in a judgmental and lazy mind.”
— ASIC Enforcement Update: January to June 2021 (or Kyongho)
The carnival continues
2022 is in full swing and, just like previous years, there’s been little change in financial services. For the most part, we’ve been left to our own devices. We’ve enjoyed a break from regulatory scrutiny and been spared any shifts in stakeholder expectations.
Some might say we’ve had it pretty good.
Some might say that, but few advisers, licensees or compliance people would agree.
The last six months have been defined by a significant series of reforms implemented in a very compressed time-frame.
The last six months have also been defined, in our opinion, by an optimistically resilient industry response.
Most advisers have reacted quickly and decisively to these changes while others responded with cautious optimism and hopeful reliance on ASIC’s facilitative approach.
The Red October reforms have been addressed elsewhere, so we’d like to take this opportunity to provide a little insight on what nagging issues are occupying your peers.
“Testing…testing…is this thing on?”
Advisers frequently ask whether they can still sit the FASEA exam and, if they can, what’s the last date available to them.
If that’s your question, you may be reassured yes you can sit the exam in 2022 and you don’t have to pass the exam until 30 September 2022, or 1 October 2022, or 3 November 2022, or something.
Let’s unpack this a little bit. As you know, advisers who have sat, and failed, the FASEA exam at least twice before 1 January 2022, have until 1 October to pass the exam. This was originally set for 30 September 2022, but possibly moved to allow for last minute cramming and midnight sittings.
However, at the time of announcing the Government’s decision to allow this extension, the sitting dates for 2022 hadn’t been released.
They have now and this is where your confusion might increase. ASIC have confirmed exam sitting dates for May, July and November 2022. No doubt you understand the confusion – despite the cut-off period of 1 October 2022, but the last scheduled sitting for the year appears to be 3 November 2022.
In our diaries, November is after October but if you can explain the space-time anomaly that underpins ASIC’s scheduling, you get a gold star.
It’s good to see that, by scheduling exams in July rather than August or September, ASIC are finally recognising that EOFY ushers in one of the quietest, and least stressful, periods enjoyed by financial advisers.
Going back to the future, again
“Other professions are not so pervaded by conflicts of interest and do not have such a high tolerance for [their] continued existence. ”
— Hayne Royal Commission, Final Report , page 135
On January 1, FASEA’s obligations were transferred to Treasury and a single disciplinary body (the Financial Services and Credit Panel) was announced to solve the inherent problems caused by the multitude of conflicted and confused approaches to misconduct and misadventure.
FASEA’s departing gesture was to refer the contentious Standard 3 ‘task’ to Treasury. Some have presented this as a hospital pass, and suggested that FASEA has walked away from the inevitable explosion in slow motion.
This evocative image is, although appropriately cinematic, a gross misrepresentation of the effort undertaken to address Standard 3 before responsibility reverted to Treasury. FASEA sought submissions (and we provided one) but there was no consensus on the solution, unsurprisingly given the various Associations’ internecine engagement.
Some hope that the referral to Treasury (before an imminent election) will lead to a revision and rewording of this Standard. Some advisers are even suggesting that this revision will occur prior to the first FASEA sitting in May.
It is, in our view, highly unlikely that any revision will be published in the next few weeks and advisers would be better served by focusing on the current standard rather than ignoring it in hope of fundamental change.
“(T.M.D.) I’m dynamite
(T.M.D.) And I’ll win the fight”
— Songwriters: Angus Young / Malcolm Young / Ronald Belford Scott “TMD”. lyrics © BMG Rights Management, Sony/ATV Music Publishing LLC
The need to produce a Target Market Determination – which essentially summarises the Product Disclosure Statement – may be an implict admission of the failure of disclosure, but we’re hard pressed to conclude whether the requirement is a scathing indictment of the product manufacturers who issue products people can’t understand, the lawyers behind the PDS’ that people can’t read or understand or the advisers who recommend products without reading or understanding the PDS.
It’s a mystery inside an enigma inside a regulated document and it’s also a significant imposition to solve a relatively specific problem.
As you know, a Target Market Determination (TMD) must be prepared by product issuers for each product they are offering to retail clients, and distributors must take reasonable steps to comply with the TMD itself.
Advisers that provide personal advice are generally exempted from the more onerous requirements (on the basis of their existing (and onerous) obligations) but they are not entirely exempted; they are expected to utilise the TMD during their consideration and assessment of products during the research phase of the advice.
This had little impact to those advisers who already have a robust product selection process in place, although we have identified common failures to operationalise the requirements or implement them as distinct and disconnected from the advice process. Some have interpreted it as a Licensee issue, and not something that should concern an adviser who limits their recommendations to the Licensee’s Approved Product List.
That is, in our view, a big mistake. As always, advisers need to treat each client and each product recommendation separately and base their decisions on the client(s) relevant circumstances. The appropriateness of their recommendation, and their advice process, may be critically compromised if the adviser has neither considered the TMD or contemplated whether the recommendation is consistent with it.
If you are providing personal advice, there may be specific reasons (including relevant consequences and implications) why you might consider a product suitable for your client notwithstanding the TMD, but you need to address the inconsistency. To address the inconsistency, you have to be aware of it. While you might take comfort from your Licensee’s research methodology, we would caution advisers to rely on their own determinations and ensure their process of consideration and assessment is properly documented.