Nine out of 10 SMSF advisers failing to consider best interests of clients: ASIC

Nine out of 10 self-managed super fund advisers failed to consider the best interests of their clients, says ASIC.

ASIC deputy chair Peter Kell leaves the Commonwealth Law Courts Building in Melbourne earlier today. (AAP Image/Luis Ascui)

Financial advisers giving advice about self-managed super funds failed to consider the best interests of their clients in an astounding nine out of 10 cases, according to new Australian Securities and Investments Commission data revealed at the Financial Services Royal Commission this morning.

ASIC deputy chairman Peter Kell said the failure to comply with a key requirement of the law, revealed in a survey of 137 financial services licensees, was “obviously very disappointing, to say the least”.

He said a smaller percentage of cases, which he did not provide, resulted in financial detriment to the consumer.

“But what we have found across large and small licensees in our reviews of recent times is that the industry as a whole is struggling to get to get to grips with how to implement the key best interests duties requirements.”

Mr Kell was giving evidence today as part of the royal commission’s second round of public hearings, which focus on the scandal-plagued financial advice sector.

He said that despite years of legal crackdowns on the scandal-prone sector, financial advisers could not yet be regarded as professionals.

“In ASIC’s view it is not yet a profession,” he said.

“There are certainly professionals within the industry but we do not view the industry as a whole as having reached the standards of a profession.”

He said professionalising the industry was one of ASIC’s goals.

Asked by counsel assisting the commission, Rowena Orr, QC, why it had not happened yet, Mr Kell said that standards of competency and qualifications required to be a financial adviser were not yet in place, and pointed the finger at adviser remuneration that resulted in conflicts of interest.

June 26, 2014

Royal Commission timeline

The Senate economics committee calls for a royal commission following a lengthy inquiry into ASIC’s performance that focused on financial planning scandals at the CBA.

April 21, 2016

Royal Commission timeline

In an attempt to stave off continuing calls for a royal commission, the Australian Bankers Association announces former senior public servant Ian McPhee will oversee an overhaul of industry standards and practices.

November 30, 2017

Royal Commission timeline

After years of denying a royal commission is needed, the banks write to Prime Minister Malcolm Turnbull asking for one. He obliges.

February 12, 2018

Royal Commission timeline

Commissioner Kenneth Hayne formally opens the inquiry and sets the tone by laying into the big banks for failing to provide all the information he wanted in time.

March 13, 2018

Royal Commission timeline

The commission’s first full public hearings hear about consumer credit issues including a home loan fraud ring among NAB bankers in Western Sydney and out-of-control mortgage brokers at CBA subsidiary Aussie Home Loans.

April 16, 2018

Royal Commission timeline

Second round of hearings kicks off with a focus on one of the industry’s most scandal-prone sectors, financial planning.

“Some of the conduct and consumer outcomes that have been very poor on a widespread scale indicate that we’re not yet at the position where we have a profession,” he said.

““The levels of competence and professionalism need to be improved, and we see that as contributing to the poor quality of advice.”

He complained that financial institutions have resisted ASIC’s demands that they remediate customers who have paid fees for services never received.

“This has been at times quite a difficult process around two issues in particular — one is the remediation program, and the second is around the nature of the reviews required to establish if there has been further charging of fees for no service,” he said.

He said there had been “reasonably vigorous” discussions with banks about the scope of remediation schemes, with some firms suggesting consumers should “have to actively opt in” to them.

Banking Royal Commission

What it means for the banks

Opposed by the banks right up until the moment they asked for it in November, the commission presents both obvious dangers and hidden opportunities to the sector.

Their already-battered public reputations have taken further hits and commissioner Kenneth Hayne has mulled the prospect of tighter regulation.

Some of the worst areas exposed by the commission so far - particularly the commissions paid to car dealers and mortgage brokers - are areas where some banks would like to see a crackdown, but lack the guts to take action that would put them in danger of losing market share.

New regulations cutting mortgage broker commissions, for example, would allow the banks to compete on a level playing field while crushing an industry they have allowed to steal away half of all home loan sales.

“That was not the right way to go,” he said.

Other arguments had been about the length of remediation programs and whether the mere offer to conduct an annual review was sufficient to allow the fee to be charged.

“All of those issues and more, frankly, have been in dispute,” he said.

Asked by commissioner Kenneth Hayne if it was an example of firms selling what they “can’t deliver, won’t deliver or don’t deliver,” Mr Kell said: “I would say that the don’t deliver would capture the majority of the cases we are talking about.”