Tougher penalties for bad practices

A poll conducted by Money Management has revealed strong support for stricter penalties being imposed against recalcitrant advisers.

Some 72 per cent of respondents felt that penalties against advisers enforced by the Australian Securities and Investments Commission (ASIC) were not stringent enough and “achieved nothing as recalcitrant advisers can simply set up again after a few years”.

Financial Planning Association (FPA) deputy chief executive and head of professionalism Deen Sanders said it is important to note that such activity is an “artefact of the current regulations” and that things are likely to change as ASIC’s powers increase and as the industry plays more of a role in weeding recalcitrant advisers out.

Sanders said ASIC had sought additional powers to be able to refuse an Australian Financial Services Licence to people they believe are unlikely to be able to meet the requirements and conditions of the licence.

“That’s a specific shift in the power, whereas in the past they have been unable to refuse a licence,” said Sanders. “I think there will be significant improvements in [ASIC’s] capacity to make sure that only the right people are in the marketplace in the future.”

But he added that individual employed financial advisers are invisible to the system.

The debate about whether penalties against dishonest or incompetent advisers are sufficient can be ongoing, but Sanders feels it is important to remember that ASIC has exercised the powers it has.

He asserts it is up to the industry to play its part — by checking references adequately, for example. He said while the use of ASIC’s reference-checking handbook is not yet an ASIC requirement (although FPA principal members are required to follow the handbook) it encourages the industry to engage in good practices.

“Sometimes, at a period of planner shortage, licensees can be eager to bring somebody onto their books and at those times they are perhaps not engaging in sufficient due diligence to make sure that they are getting the right people into their licence,” he said.

Claude Santucci, president of the Boutique Financial Planning Principals’ Group, said the issue of penalties is beside the point because consumers are largely unaware of ASIC’s banned adviser registers.

“The regulator is like CSI: when the crime is done they will come in and do all the forensics and then lay the blame somewhere. They are not there before the crime is committed,” he said.

He said this is partly why there has been a call for a financial planner register of competent advisers, administered by a professional standards board, which would create a disincentive for bad practice.