Future of Financial Advice (FOFA) changes seek to “lay out far clearer rules in terms of providing advice”, Australian Securities and Investments Commission (ASIC) chairman Greg Medcraft said at a doorstop interview at last week’s annual Financial Services Council conference.
ASIC last week released the second phase of its Review of financial advice industry practice, which reviewed the 21st to 50th largest Australian advice licensees and found half were wholly owned or majority owned by product issuers.
Asked by InvestorDaily whether this alignment remains a concern due to the potential to influence advice, Mr Medcraft said “[FOFA] says you must act in the interests of your client."
“If your client’s and your interests are in conflict, you’ve got to prefer the interest of your client, so ... there’s a legal obligation that advisers need to be performing.”
He added that “once FOFA is bedded down, our surveillance on advisers will focus on whether they are complying with the law”.
Asked how realistic it is to completely remove those incentives, Mr Medcraft said “we will look to enforce the law after a facilitative period, as I’ve mentioned, but people should be under no illusion we will basically survey and we will do it on a risk-based approach, and we will identify those we think might be at more risk of providing inappropriate advice and not complying with the law”.
Mr Medcraft added it would be good if industry representative bodies could take the lead on these issues. “We like well self-regulated industries because we regard them as lower risk and they don’t take as much of our attention,” he said.
Speaking more broadly on the issue of disclosure, Mr Medcraft said commissions had been a concern because disclosure didn’t work, and even if they were disclosed, consumers didn’t understand them.
“Broadly, we’re constantly hearing that people often don’t read the disclosure, [such as] large information memorandums and financial services guides. We’ve got to think a bit more creatively,” he said.
“Putting more into disclosure documents that many people don’t read doesn’t achieve the outcome disclosure is trying to achieve.”
The industry needs to think more creatively, he added, but said simply moving them online wouldn’t work, given how few people read terms and conditions of online agreements before signing up to something.
“It’s about video and mobile and networking, social networks - maybe you could use a video to communicate,” he said.
“You’ve got to think about consumer behaviour a little more.
“Often product manufacturers produce a lot of these documents and if people don’t read them, you have to ask what you’re achieving.”
