It’s my last weekend before signing off for the year, so I am doing what every conscientious AFSL responsible manager should be doing: laboring over recent ASIC enforceable undertakings against financial planners trying to learn more about how I can make a good thing even better. 

In summary, it’s mind manipulating character assassination by press release.

The mind manipulation

First its the ASIC PRESS RELEASE! dripping with shadenfreudian intentions.

It’s instantly plagiarised and re-published by the financial press and, before you can say “Tim Berner-Lee”, eighteen thousand shadenfreuded financial planners are shaking their heads and reading all about it over their morning coffee and cake.

Tsk tsk tsk; he deserved it. Tsk tsk tsk; they nod. Could never happen to me. My SOAs are much better than that.

But are you sure it could not happen to you? Are you sure your SOAs are much better than that?

Let’s look at how ASIC describes a few of the more nefarious infractions:

  • failed to undertake adequate inquiries into the relevant personal circumstances of some clients to whom he made recommendations
  • failed in some instances to provide adequate replacement product advice to the client in the Statement of Advice, preventing the client from making an informed decision to switch insurance cover
  • inadequately demonstrated in some cases the benefits of a stepped or level premiums
  • failed in some cases to consider the competing priorities of adequate insurance versus affordability, including the longer term impact of placing insurances within superannuation
  • limited the advice in some cases to exclude issues which cannot reasonably be excluded from the scope of advice.
  • failed to provide SOA to clients within the required timeframes
  • relied excessively on template SOA’s containing prepopulated information.

Do you really think it’s not a case of there for the grace of God go you? At least in some cases?

Any adviser could make any one of these mistakes. Including you. At least in some cases. 

MLA Lawyers checks every SOA before it goes to a client. Dover frequently identifies SOAs that could, on a harsh reading, match one or two of these infractions.

Anyone can make a mistake. Last week one of our star advisers, who usually produces excellent SOAs, forgot to include a comparison of the costs of the old product and the new product. When asked what went wrong she was embarrassed to say her para-planner mucked it up. She did not notice, and the draft SOA was submitted to MLA Lawyers for compliance review sans cost comparisons.

Lucky it did not go to the client. Lucky MLA Lawyers checks every SOA. But what if MLA Lawyers was having an off day…. It does happen. People make mistakes. I know I do.

What happens at AFSLs that only check two or three SOAs per adviser per year? We can get some idea from ASIC’s observation at paragraph 61 of ASIC Report 251 13.9.11 Review of financial advice industry practice that some top 20 AFSLs do not randomly select any SOAs for review. None. In other words, ASIC says, some AFSLs do not check their advisers’ SOAs.

Those unchecked SOAs are full of mistakes, just like the ones listed above. As Mr Kell says in the press release for ASIC Report 413 Review of retail life insurance advice October 2014 that:

… of more than 200 advice files from large, medium and small Australian financial services (AFS) licensees found that 63% were compliant. However, more than one third (37%) of the advice consumers received failed to comply with the laws relating to appropriate advice and prioritising the needs of the client.

You can watch and listen to Mr Kell discuss this here: Mr Kell explains how more than one third of risk insurance SOAs breach the Corporations Act.

Do you still think you could never make a mistake? Do you think your SOAs are perfect, and it could never be you ASIC enforceably undertakes. If so please read these three e-books from Dover’s Financial Planning 101 series:

Dover’s 101 Common Mistakes in Statements of Advice

Dover’s 101 Things That Financial Planning Should Be About

Dover’s 50 Up Fifty Ideas To Take Your Risk Insurance Practice From Good To Great

We are creating these e-books to help you create better SOAs and provide a better experience for your clients.

Character assassination by press release

The ASIC PRESS RELEASE! frightens advisers. It frightens AFSL responsible managers too.

But is it fair? Is it what a fair minded Regulator should be doing? I don’t think so.

We only see one side of the story. The adviser has no right of reply. I have never seen a “My Response to ASIC’s Press Release” press release published anywhere.

If more than a third of all risk insurance SOAs breach the Corporations Act how can it be fair to single out one adviser and drag him through the kangaroo court of public opinion?

How can it be fair to name and shame him, but not name and shame more than a third of the other 17,000 financial planners in Australia?

There are many players in the financial planning theatre. They include:

  1. the AFSL compliance manager who does not read an SOA even though he knows there is a better than one in three chance it breaches the Corporations Act
  2. the underwriting manager who gleefully writes the new business, fully aware there is nothing wrong with the old cheaper policy
  3. the institution that compels the adviser to only recommend its products
  4. ASIC’s SOA review team, who have not yet up-dated part E of RG 175 for the content of ASIC Report 413 Review of retail life insurance advice October 2014.

Why are the big guys not named and shamed? The insurer? The BDM? The AFSL? The guys who trained him, paid him and encouraged him? The guys who profited from him? Why is it always the little guy at the end of that very long and very conflicted product distribution chain? 

I have no doubt ASIC’s media consultants reckon these public executions are good value. (They would, wouldn’t they, notwithstanding their conflict of interest). I understand why ASIC wants to get its deterrent message out.

But in some cases I have greater sympathy for the executed advisers. They have spouses, children and parents. They have feelings too.

The shaming is public and permanent. It’s a modern version of the old village stocks, and a ready supply of rotten e-tomatoes.

Let he who is without sin cast the first e-tomato.

Why can’t ASIC do it more fairly? More privately? Why does it have to be a public life sentence? That ASIC PRESS RELEASE! will still be there, a Google search away, in twenty year’s time.

Retrain in a different profession? Bad luck, mate. It’s still there. Your potential new employer will Google you. Its a professional life sentence. Daughter’s wedding day? Bad luck mate. Its still there. Her guests will Google you. Its a public life sentence.  It’s an e-scar on your e-face. You cannot make a fresh start. That e-scar goes wherever you go.

Trial by press release does not happen in other professions. I have represented doctors in Medicare cases and Medicare does not put out press releases like these. I have watched solicitors get gaol time for trust account fraud and no one else knows. 

Convicted criminals have more privacy rights than advisers who fall foul of ASIC.

Trial by press release causes deep depression, financial failure and family breakdowns. There are already little kids who don’t really have a dad. Soon we will see a suicide, and a little kid really won’t have a dad.

Would it make much difference if the ASIC PRESS RELEASE! did not mention the poor bastard’s name? Just said “an adviser has entered into an enforceable undertaking…”. Would fewer advisers read it? Would fewer advisers heed it? Would compliance standards fall? Has ASIC done a before and after survey? Can ASIC prove the benefits outweigh the costs?

I think not. If 37% of SOAs breach the Corporations Act I cannot see another press release having much effect. There must be a better way for ASIC to get its message out.

May be ASIC could run an SOA CPD day? May be ASIC could write a risk insurance guide with 50 practical tips to make the advice more appropriate? May be ASIC could create a list of 101 common SOA mistakes? May be ASIC could put out some really good template risk insurance SOAs?

May be ASIC could do something positive?