The business I run is based in Rockhampton, a regional city which has suffered the effects of the mining downturn, consolidation of Government and large businesses into the capital cities, and the effect of mergers and takeovers.
Small and medium businesses represent the only private sector growth of our region, and Government bureaucracy is killing them.
I started our business as a fee-for-based (not commission based) financial services firm in 2001. As far as client services and regulation goes, we were for many years way ahead of the curve — tailored advice, fee reports, scheduled client review meetings — but the changes are now so pervasive and inexpertly managed by regulators and related agencies, that is almost impossible to work out what is going on.
Your regulator ASIC is downright incompetent. Our experience includes dithering, delays, lack of clarity, and an anti-business attitude. I guess we might expect that of a government department, but now this agency has set itself aside from the impartiality of public service, and is headed up by a team we see reported as ‘The Magnificent 7’.
These commissioners and deputy commissioners are supported by a ‘spin’ department that pays no heed to the very standards ASIC says it expects of the industry it oversees.
Take the recent “information” supplied by ASIC as regards Self-Managed Superannuation Funds. It stated the cost of running an SMSF averaged almost $14,000 per annum, when in our experience the incremental cost is more like $1500. It also referred to poor returns from smaller funds. In neither case did ASIC go to any trouble to explain how it derived this data, even though the Productivity Commission itself warned that it was not robust enough to base conclusions on.
We can only reach the conclusion that ASIC has an agenda of seeing money transfer to industry funds, the sector most aligned with a left-wing paradigm and, most recently, aligned to Danielle Press (ex-head of an industry fund and now ASIC Commissioner.)
Meanwhile, we have been working for some four months to effect a change to the authorisations on our Australian Financial Services Licence. We submit information, and despite follow-up phone calls and emails, hear nothing until we insist the matter is escalated. Worse, ASIC’s licensing regime is grossly flawed, serving to embed people with flawed histories rather than bringing in quality people from other sectors of the economy.
Which brings me to Karen Chester who has publicly stated that the $10 billion in restitution paid or being paid by the financial services industry is just “the tip of the iceberg”. But put in context of total superannuation balances, home loans outstanding and assets supporting insurance policies, $10 billion in restitution is about 4 one-hundredths of one per cent (less when we consider that the restitution payments accumulated over a long period of time). To assert these restitution payments are somehow reflective of an industry rotten to the core is downright misleading.
Our internal modelling shows that the biggest predictor of the movement in housing prices is the availability of bank lending. In an environment of easy monetary policy, bank lending was grossly constrained by the requirements of ASIC and APRA that detailed analysis of all client was required before a loan could be advanced. Against the background of the Royal Commission, banks were unable to keep up with this additional compliance requirement, and consequently lending dried up. It is no coincidence that lending has recovered somewhat failing ASIC’s failure to prosecute their case in the courts (the Wagyu and Shiraz case).
Then we have APRA which attempted to prosecute IOOF for breaches of its duty to superannuation members. The courts found there was no such breach, but only after the CEO has been hauled through the court of public opinion and had lost his job.
Senator, your regulators are incompetent, biased and in no position to take a leadership role in one of the important sectors of the Australian economy. Frankly, they are killing our economy, yet we find their influence expanded – by virtue of their own will. ASIC, recently exempted from public service conduct requirements, expands this influence through regulatory guides that are, in many cases, almost impossible to read, and related agencies such as AFCA (Australian Financial Complaints Authority), FASEA and the mooted professional standards board. Worse, ASIC is funded by an industry levy that simply reflects its costs – whatever they are.
FASEA is also responsible for setting education standards for the financial services industry and in particular financial advisers. The education standards have been inconsistent and a long time in being settled, so much that we have had to hire our own full-time training manager.
AFCA is another problem. We are required to be a member of it by virtue of the Corporations Act, but as members we cannot challenge decisions in court, even when AFCA’s predecessor (the Financial Ombudsman Service) was found to have fabricated file notes. Members cannot insist that a complainant be tested for the validity of their complaint, and typically when a complaint is lodged, AFCA helps the complainant dig around for other angles by which a compensation payment might be made. Of course, it is much easier just to make some ex gratia payment and savvy clients know this and play it for what it is worth. Now, in the weekend papers, we have the head of AFCA commenting on Fair Work matters, which are not at all in its jurisdiction.
Let’s look at Centrelink, an agency which many clients rely on for part of their retirement incomes. This government agency continually makes errors in asset records, cuts pensions off for no reason, and threatens “consequences”. Almost always, Centrelink has misplaced information provided previously, incorrectly allocated assets to the relevant categories, or made an assumption without checking the facts. These problems are so pervasive that we now have a full-time employee tasked with dealing with Centrelink.
Finally, we have the RBA, which says that they have been liaising with all their overseas counterparts and cannot understand why cash rates are so low, and economic growth so poor. It is only in the last few months that we have admitted that the issue is demographics – which means our Baby Boomers are net savers, resulting in massive cash and asset balances (whether in superannuation or not), the value of which is not circulating in the economy. But the RBA is geared up to undertake Quantitative Easing, which is a measure that protects current asset values, but undermines the value of work.
Basically, we have an economy where unaccountable bureaucrats are regarded better than almost everyone else, and overseas comparisons and over-regulation is seen as a panacea. The whole thing is masked by lower and lower interest rates and quantitative easing such that asset prices keep buoyant and none of the underlying issues are addressed. What should be done?
- Restructure ASIC and AFCA
ASIC should have its administrative, lawmaking activities separated from its consumer protection and licensing activities.
- Insist that consumers take responsibility for their investment decisions
Providers should be able to assume that a Statement of Advice has been read by the client. Perhaps a mandatory 14-day cooling-off period before any investments are made.
- Operation of the complaints court
A nominal fee should apply to lodge a complaint. The methods of the restructured AFCA should not involve a conciliation stage. If the matter gets to AFCA it should be dealt with normally in a courtroom.
- Cease reviews
There should be no more reviews of the financial services industry for at least a decade. All players need to digest and implement changes that are already in train. The Royal Commission is especially damaged in terms of reduced lending and loss of jobs in the finances sector.
Economic growth over coming decades is likely to be very soft because of the baby boomers’ asset balances, which do not contribute directly to economic growth. A critical aspect to (productivity) is lighter and more effective regulation, where rules are clear and consumers take much more responsibility.
- Emission trading
There are too many distractions making it into Government. Some of these, Global Warming for example, are best dealt with through markets (an emissions trading scheme) rather than regulation.