Introduction
1.1
This inquiry has been undertaken by the Parliamentary Joint Committee on
Corporations and Financial Services during a period of significant change and
scrutiny related to the provision of financial advice. Increasing the professional,
ethical and education standards applied to financial advisers is not intended
to be a silver bullet or a single solution to all of the issues that may arise
in this policy area, but rather is seen by the committee as one of a range of
measures intended to improve the quality of advice and outcomes for investors.
Duties of the committee
1.2
The Parliamentary Joint Committee on Corporations and Financial
Services (the committee) is established by Part 14 of the Australian
Securities and Investments Commission Act 2001 (the ASIC Act). Section 243 of the ASIC Act sets out the committee's
duties as follows:
- to
inquire into, and report to both Houses on:
- activities of ASIC or the [Takeovers] Panel, or matters connected with
such activities, to which, in the Parliamentary Committee’s opinion, the
Parliament’s attention should be directed; or
-
the operation of the corporations legislation (other than the excluded
provisions); or
-
the operation of any other law of the Commonwealth, or any law of a
State or Territory, that appears to the Parliamentary Committee to affect
significantly the operation of the corporations legislation (other than the
excluded provisions); or
-
the operation of any foreign business law, or of any other law of a
foreign country, that appears to the Parliamentary Committee to affect
significantly the operation of the corporations legislation (other than the
excluded provisions); and
- to
examine each annual report that is prepared by a body established by this Act
and of which a copy has been laid before a House, and to report to both Houses
on matters that appear in, or arise out of, that annual report and to which, in
the Parliamentary Committee’s opinion, the Parliament’s attention should be
directed; and
- to
inquire into any question in connection with its duties that is referred to it
by a House, and to report to that House on that question.[1]
Referral of the inquiry and terms of reference
1.3
Following a recommendation by the Senate Economics References Committee
inquiry into the performance of ASIC, the committee resolved on
14 July 2014, to inquire into proposals to lift the professional,
ethical and education standards in the financial services industry with the
terms of reference set out below.
Pursuant to the committee's duties set out in section 243 of
the Australian Securities and Investments Commission Act 2001, the
committee will examine proposals to lift the professional, ethical and
education standards in the financial services industry, including:
- the adequacy of current
qualifications required by financial advisers;
- the implications, including
implications for competition and the cost of regulation for industry
participants of the financial advice sector being required to adopt:
- professional standards or
rules of professional conduct which would govern the professional and ethical
behaviour of financial advisers; and
- professional regulation of
such standards or rules; and
- the recognition of
professional bodies by ASIC.
Conduct of the inquiry
1.4
The committee advertised the inquiry on its webpage and invited
submissions from a range of relevant stakeholders. The committee received 39
submissions which were published on the committee's website and are listed at
Appendix 1. The committee held public hearings in Melbourne on 13 October 2014,
in Sydney on 14 October 2014 and in Canberra on 26 November 2014. Appendix
2 lists the names and organisations of those who appeared at public hearings.
Details of the inquiry and associated documents including the Hansard
transcripts of evidence may be accessed through the committee webpage.
1.5
The committee thanks organisations and individuals who made submissions
and gave evidence at public hearings.
1.6
References to the Committee Hansard include references to the proof
Hansard. Page numbers may vary between the proof and the official Hansard.
Report Structure
1.7
This report is structured as follows:
-
the rest of Chapter 1 provides some background to the inquiry, and
a discussion of other relevant inquiries;
-
Chapter 2 discusses relevant terminology affecting the financial
advice industry, including 'general advice' and who is able to use the terms
'financial adviser' and 'financial planner';
-
Chapter 3 discusses professionalism and co-regulation of
financial advisers;
-
Chapter 4 discusses the first term of reference on the adequacy
of qualification requirements for financial advisers; and
-
Chapter 5 discusses the second and third terms of reference
including professional standards, codes of conduct and recognition of
professional bodies and codes of conduct.
Background
1.8
The issues relating to financial advisers considered by this inquiry
have been the subject of previous inquiries by parliamentary committees and the
government. This section provides a summary of some of the relevant inquiries
and the recommendations made by those inquiries. In addition to demonstrating
that a number of the issues considered by this inquiry are long standing, the
committee considers that it is useful to be aware of the way previous inquiries
have shaped current regulatory arrangements.
The Campbell inquiry
1.9
In 1979 the government established a Committee
of Inquiry into the Australian Financial System (the Campbell Inquiry),
which examined the structure and methods of operation of the Australian
financial system. The inquiry, which was finalised in 1981, advocated substantial
financial deregulation and was a catalyst for major economic reforms including
financial deregulation in Australia.[2]
1.10
In 1991 the impact of financial deregulation was reviewed by the
House of Representatives Standing Committee on Finance and Public
Administration (the Martin committee). The Martin committee concluded that:
...much of what was envisaged of deregulation has
occurred...Finance has become more widely available, though customers have had to
pay a market price for it, including a component to reflect risk...However
deregulation has not delivered some of the benefits envisaged...The failure of
the market to deliver better information to consumers...The relationship between
banks and customers remains an area requiring major improvement.[3]
The Wallis inquiry
1.11
The 1997 Financial System Inquiry, known as the Wallis inquiry,
provided a stocktake of outcomes from financial deregulation of the Australian
financial system from the early 1980s. The Wallis inquiry considered a broad
range of reforms aimed at improving financial system efficiency and presented
recommendations for financial regulation, including arrangements for market
integrity, consumer protection, safety, stability and competition.[4]
1.12
The fundamental policy settings for financial services in Australia were
developed following the principles set out in the Campbell and Wallis inquiries.
Those principles were based on the ‘efficient markets theory’, a belief that
markets drive efficiency and that regulatory intervention should be kept to a
minimum to allow markets to achieve maximum efficiency. As a result, consecutive
governments have established that ASIC's role is largely to 'oversee and
enforce compliance'.[5]
1.13
The Wallis inquiry considered the regulatory arrangements for financial
advice and financial advisers. The inquiry concluded that consumers need
information about fees, commissions (including trailing commissions) and the
remuneration paid to their financial advisers or brokers so that they can
determine whether a recommendation is skewed in favour of a particular product.
Regulations at the time covered disclosure of fees and commissions by investment
advisers, life agents and brokers, but not bank staff. The inquiry recommended
enhancements to disclosure requirements and regular monitoring of those
requirements.[6]
The Wallis inquiry made a number of other significant recommendations relating
to financial advisers and financial advice, as set out below.
1.14
In recommendation two the Wallis inquiry recommended that the body,
which is now ASIC, should be responsible for a wide range of regulatory
functions, including the following functions that relate to financial advice:
-
regulating disclosure for securities and retail investment
products;
-
regulating investment and insurance sales and advice and
financial market dealers and participants;
-
regulating the conduct of dealings with consumers and the
prevention of fraud;
-
delegating accreditation and disciplinary functions to self‑regulatory
bodies where appropriate; and
-
setting benchmarks for and monitoring the performance of those
self‑regulating bodies.[7]
1.15
In recommendation 13 the Wallis inquiry recommended that a single
licensing regime should be introduced for financial sales, advice and dealing,
with separate categories for investment advice and product sales, general
insurance brokers, financial market dealers, and financial market participants.[8]
1.16
In recommendation 14 the Wallis inquiry recommended devolving
responsibility for competency training and testing to industry bodies and
giving the body that would become ASIC the option to require that licence
holders commit to codes of conduct or dispute schemes that meet minimum
standards.[9]
1.17
In recommendation 15 the Wallis inquiry recommended that the body that
would become ASIC should develop a single set of requirements for investment
sales and advice including:
-
minimum standards of competency and ethical behaviour;
-
requirements for the disclosure of fees and adviser’s capacity;
-
rules on handling client property and money;
-
financial resources or insurance available in cases of fraud or
incompetence; and
-
responsibilities for agents and employees.[10]
1.18
In recommendation 16 the Wallis inquiry recommended that the existing
regulation of real estate agents should be reviewed. It was recommended that real
estate agents providing investment advice be required to hold a financial
advisory licence unless the review clearly established the adequacy of existing
regulation.[11]
1.19
In recommendation 17 the Wallis inquiry recommended that professional
advisers, such as lawyers and accountants, should not be required to hold a
financial advisory licence if they provide investment advice that is only
incidental to their other business and that they rebate any commissions to
clients.[12]
1.20
Many aspects of Wallis recommendations 2, 13, 14, 15, 16, and 17 were
implemented in subsequent reforms. The Financial Services Reform Act 2001 (FSR
Act) introduced a single licensing regime for financial products, a
single regime for regulating financial services (investment advice), imposed
requirements for disclosure of fees and introduced a national dispute
resolution system. The FSR Act also required licensing of financial advisers.[13]
The FSR Act allowed for authorised representatives of the licensee to give advice[14]
consistent with the views put forward by the Wallis inquiry which suggested
that licences should be issued to financial institutions (where the provider of
sales and advice acts on behalf of an institution) or to independent advisers.[15]
1.21
In 2007 changes to the corporations legislation led to requirements for
financial advisers to take out adequate professional indemnity insurance. In
addition a single Financial Ombudsman Service (FOS) was created in 2008 out of
a number of separate financial sector ombudsman schemes.[16]
The FOS provides an independent dispute resolution process which covers
financial services disputes, including banking, credit, loans, general
insurance, life insurance, financial planning, investments, stock broking,
managed funds and pooled superannuation trusts.[17]
1.22
Towards the end of the 2000s, there was substantial disquiet about
incentive structures within that industry and conflicts of interest.[18]
Mr Kevin Davis noted that:
While AFS (Australian Financial Services) license holders
were required to be members of an external dispute resolution scheme...the
ability of individuals to afford to pursue legal action for claims above the
$100 000 cap involved in that scheme left investors exposed. Over the decade,
the role of class actions and litigation funders of such actions also increased
dramatically,
including actions against financial advisers.[19]
2009 inquiry into financial
products and services
1.23
In 2009, this committee conducted an Inquiry into financial products
and services in Australia[20]
to examine issues associated with collapse of financial products and services,
such as those provided by Storm Financial and Opes Prime. The inquiry included
a significant focus on the role and regulation of financial advisers, the role
of commissions, and the adequacy of licensing arrangements.[21]
In its report the committee found that the historical emergence of financial
advisers as a sales force for product manufacturers was inconsistent with
expectations that financial advisers provide a professional service that meets
their clients' best interests.[22]
1.24
The following recommendations made by the inquiry are relevant to the
committee's current inquiry:
Recommendation 1
The committee recommends that the Corporations Act be amended
to explicitly include a fiduciary duty for financial advisers operating under
an AFSL, requiring them to place their clients' interests ahead of their own.
Recommendation 2
The committee recommends that the government ensure ASIC is
appropriately resourced to perform effective risk-based surveillance of the
advice provided by licensees and their authorised representatives. ASIC should
also conduct financial advice shadow shopping exercises annually.
Recommendation 3
The committee recommends that the Corporations Act be amended
to require advisers to disclose prominently in marketing material restrictions
on the advice they are able to provide consumers and any potential conflicts of
interest.
Recommendation 4
The committee recommends that government consult with and
support industry in developing the most appropriate mechanism by which to cease
payments from financial product manufacturers to financial advisers.
Recommendation 6
The committee recommends that section 920A of the
Corporations Act be amended to provide extended powers for ASIC to ban
individuals from the financial services industry.
Recommendation 7
The committee recommends that, as part of their licence
conditions, ASIC require agribusiness MIS licensees to demonstrate they have
sufficient working capital to meet current obligations.[23]
FOFA
1.25
In April 2010 the government responded to the committee's report with a
package of reforms called Future of Financial Advice (FOFA). The FOFA reforms
were designed to tackle conflicts of interest that threatened the quality of
financial advice provided to Australian investors, and the inappropriate selling
of financial products that culminated in high profile corporate collapses such
as Storm Financial, Opes Prime, and Westpoint.[24]
1.26
In June 2012, FOFA reforms (which were voluntary from 1 July 2012 and
mandatory from 1 July 2013)were passed by the Parliament that
included:
-
A prospective ban on conflicted remuneration structures including
commissions and volume based payments, in relation to the distribution of and
advice about a range of retail investment products.
-
A duty for financial advisers to act in the best interests of
their clients, subject to a 'reasonable steps' qualification, and place the
best interests of their clients ahead of their own when providing personal
advice to retail clients. There is a safe harbour which advice providers can
rely on to show they have met the best interests duty.
-
An opt-in obligation that requires advice providers to renew
their clients' agreement to ongoing fees every two years.
-
An annual fee disclosure statement requirement.
-
Enhanced powers for ASIC.[25]
1.27
Following a change in government, on 1 July 2014, new regulations
commenced, which reduce compliance costs and regulatory burden on the financial
services sector arising from the earlier FOFA reforms. The regulations changed
fee disclosure, the best interests duty, grandfathering provisions and the
'opt-in' requirements for continuing adviser services. The new regulations also
allowed for the provision of scaled advice and exempted general advice[26]
from conflicted remuneration provisions.[27]
1.28
The government's amendments were implemented through the Corporations
Amendment (Streamlining Future of Financial Advice) Regulation 2014.
The regulation commenced on 1 July 2014. The Government introduced the Corporations
Amendment (Streamlining of Future of Financial Advice) Bill 2014, to bring
some of the above amendments into legislation. The Bill including parliamentary
amendments made by the government, was passed by the House of Representatives
on 28 August 2014. The Bill is currently before the Senate. The government
indicated that the interim regulations (those replicated in the Bill) will be
repealed once the Bill passes the Parliament.[28]
1.29
On 19 November 2014 the Senate disallowed the Corporations Amendment
(Streamlining Future of Financial Advice) Regulation 2014. Following
negotiations between the government and the opposition, on 27 November 2014 the
Senate passed the following motion which re-instated five aspects of the
regulations:
That, for the purposes of paragraph 48(1)(a) of the Legislative
Instruments Act 2003, the Senate:
- supports
the making of regulations re-instating provisions the same in substance as the
following provisions of Corporations Amendment (Streamlining Future of
Financial Advice) Regulation 2014, as contained in Select Legislative
Instrument 2014 No. 102: Schedule 1 Items 5 (Accountants‘ certificate renewal
period); 11 (Stamping fee provision); 12 to 17 (ASX24-related provisions); 27
(non-monetary education or training benefit not conflicted remuneration); and
28, 29 and 31 to 35 (Grandfathering arrangements); and
- rescinds
its disallowance resolution of 19 November 2014 relating to the above
regulation, to the extent necessary to permit the re-making of the
aforementioned provisions in the regulations.[29]
1.30
The government also made other changes to FOFA in the additional Corporations
Amendment (Statements of Advice) Regulation 2014, which will commence on
1 January 2015. The changes include additional disclosure requirements in
the Statement of Advice, requiring a financial adviser to disclose existing obligations.
The amendments also provide requirements for the financial adviser and the
client to sign the Statement of Advice.[30]
The Trio inquiry
1.31
In May 2012, this committee concluded its Inquiry into the
collapse of Trio Capital. The
collapse of Trio Capital involved the largest superannuation fraud in
Australian history. Roughly $176 million in Australians' superannuation funds
were lost or missing from two fraudulently managed investment schemes. The
committee considered that the Trio collapse raised distinct, and in some ways
more troubling issues than those raised by the collapse of Storm Financial and
Westpoint. Trio involved a fraud and therefore went beyond Australian investors
being persuaded to put their money into inappropriate investment vehicles. The
committee noted that:
Some of the financial advice given to Trio clients may have
been in contravention of the 'best interests' test and conflicted remuneration
provisions of the FOFA legislation.
However, these provisions would not protect against a circumstance
where an adviser 'turns bad' and sets out to either defraud...clients or at the
very least to concentrate on enriching [them]self while wilfully disregarding
the evidence that the investment scheme...was fraudulent.[31]
1.32
In its report on the Trio inquiry, the committee made 14 recommendations
aimed at protecting Australian's superannuation savings through better
compensation schemes, enforcement, education of investors, investigations by
ASIC, oversight of license holders, and disclosure by responsible entities.[32]
The Economics committee inquiry
1.33
In June 2014 the Senate Economics References Committee tabled a report
on its inquiry into the performance of ASIC (Economics committee inquiry).
The inquiry ran over many months, received 474 submissions and examined
many areas of ASIC's performance, including regulation of financial advisers.[33]
The inquiry identified significant areas for ASIC's improvement, while also
recognising the good work that ASIC has done in a challenging environment.[34]
The report made 61 recommendations, including the following recommendation
to the committee:
Recommendation 54
The committee recommends that the Parliamentary Joint
Committee on Corporations and Financial Services inquire into the various
proposals which call for a lifting of professional, ethical and educational
standards in the financial services industry.[35]
1.34
On 14 July 2014, the committee accepted recommendation 54 and
established an inquiry into proposals to lift the professional, ethical and
education standards in the financial services industry.
1.35
The committee notes that the Economics committee made a number of other
recommendations in relation to financial advisers which are not within the
terms of reference for this inquiry. Some of these do however intersect with
recommendations of this report:
Recommendation 42
The committee
recommends that financial advisers and planners be required to:
- successfully
pass a national examination developed and conducted by relevant industry
associations before being able to give personal advice on Tier 1 products;
- hold
minimum education standards of a relevant university degree, and three years'
experience over a five year period; and
- meet minimum continuing professional
development requirements.
Recommendation 43
The committee
recommends that a requirement for mandatory reference checking procedures in
the financial advice/planning industry be introduced.
Recommendation 44
The committee
recommends that a register of employee representatives providing personal
advice on Tier 1 products be established.
Recommendation 45
The committee
recommends that the Corporations Act 2001 be amended to require:
- that
a person must not use the terms 'financial adviser', 'financial planner' or terms
of like import, in relation to a financial services business or a financial service,
unless the person is able under the licence regime to provide personal financial
advice on designated financial products; and
- financial
advisers and financial planners to adhere to professional obligations by requiring
financial advisers and financial planners to be members of a regulator-prescribed
professional association.
Recommendation 47
The committee
recommends that the government consider the banning provisions in the licence
regimes with a view to ensuring that a banned person cannot be a director,
manager or hold a position of influence in a company providing a financial
service or credit business.
Recommendation 48
The committee
recommends that the government consider legislative amendments that would give
ASIC the power to immediately suspend a financial adviser or planner when ASIC
suspects that the adviser or planner has engaged in egregious misconduct
causing widespread harm to clients, subject to the principles of natural
justice.
Recommendation 60
The committee
recommends that the government consider measures that would ensure investors
are informed of their assessment as a retail or wholesale investor and the
consumer protections that accompany the classification. This would require
financial advisers to ensure that such information is displayed prominently, initialled
by the client and retained on file.[36]
1.36
On 24 October 2014, the government responded to the Economics committee
inquiry into the performance of ASIC. This response identified areas in which
ASIC had already taken action to implement some of the recommendations,
including an industry working group on standards, a register of financial
advisers, use of the terms financial adviser and financial planner. The
response also indicated that the recommendations relating to recommendations
47, 48 and 60 would be considered as part of its response to the Financial
System Inquiry.[37]
Progress on the register of financial advisers has been announced by the
government and is discussed further in Chapter 2. A recent media article
reported that the working group had failed to reach a consensus about how to
move forward in the area of advisor education.[38]
Committee view
1.37
The Economics committee inquiry considered a large volume of evidence on
the hardship suffered by many people as a result of corporate collapses and problems
in the financial advice industry. The Economics committee inquiry also
undertook a detailed case study of the problems that occurred at Commonwealth
Financial Planning Limited.
1.38
The committee recognises the significant hardship suffered by many individual
investors that have been brought to light during the Economics committee
inquiry. However, in order to focus on specific proposals to lift standards for
financial advisers, the committee has chosen not to seek further evidence on consumer
specific cases as part of this inquiry.
The Financial System Inquiry
1.39
The Financial System Inquiry (FSI), announced by the Treasurer in
December 2013 examined how the financial system could be positioned to
best meet Australia's evolving needs and support Australia's economic growth.
The FSI was required to submit a final report to the Treasurer in November
2014.[39]
1.40
The committee received private briefings on the FSI from an industry
expert and the secretariat of the FSI. The committee considered the interim
report of the Financial System Inquiry which noted that:
Studies suggest there are significant issues with the quality
of financial advice, due in part to varying standards of adviser competence and
the impact of conflicted remuneration structures. Some submissions suggest
aligned or vertically integrated structures may also reduce the quality of
advice consumers receive.
At times, consumers also lack access to affordable advice. In
addition, some submissions question whether general advice is properly labelled
and whether consumers understand its nature, given general advice often
includes sales and advertising information.[40]
1.41
The FSI interim report also noted evidence from the ASIC shadow shopping
study on the quality of retirement advice, including that while 58 per cent of
advice examples were adequate, 39 per cent of advice examples were poor in
quality, and only 3 per cent of advice examples were good quality.[41]
1.42
The FSI interim report sought views on the costs, benefits and
trade-offs of the following policy options:
-
No change to current arrangements.
-
Raise minimum education and competency standards for personal
advice (including particular standards for more complex products or structures
such as Self-managed Superannuation Funds), and introduce a national
examination for financial advisers providing personal advice.
-
Introduce an enhanced public register of financial advisers
(including employee advisers) which includes a record of each adviser’s
credentials and current status in the industry, managed either by Government or
industry.
-
Enhance the Australian Securities and Investments Commission’s
power to include banning individuals from managing a financial services business.
-
Rename general advice as ‘sales’ or ‘product information’ and
mandate that the term ‘advice’ can only be used in relation to personal advice.[42]
1.43
The Financial System Inquiry reported to government in November 2014 and
the final report was publicly released on 7 December 2014. The report made 44
recommendations.
1.44
The final FSI Report identified two general themes designed to improve
the financial system:
- Funding
the Australian economy; and
- Competition.[43]
1.45
It also reported under five more specific themes
- Resilience;
- Superannuation
and Retirement Incomes;
- Innovation;
- Consumer
Outcomes; and
- Regulatory
System.[44]
1.46
The theme of 'consumer outcomes', discussed in Chapter 4 of the final
FSI Report, focuses on the fair treatment of consumers. Relevantly, the report
noted that issues related to the competence of financial advisers are
unresolved:
To build confidence and trust, and avoid over-regulation, the
financial system should be characterised by fair treatment.
In terms of fair treatment for consumers, the current
framework is not sufficient. The GFC brought to light significant numbers of
Australian consumers holding financial products that did not suit their needs
and circumstances — in some cases resulting in severe financial loss. The most
significant problems related to shortcomings in disclosure and financial
advice, and over-reliance on financial literacy. The changes introduced under
the Future of Financial Advice (FOFA) reforms are likely to address some of
these shortcomings; however, many products are directly distributed, and issues
of adviser competency remain.[45]
Relevant FSI recommendations
1.47
As noted above at paragraph 1.41, the Interim Report of the FSI
considered a range of options to improve financial advice provided to
consumers. The committee notes that the final FSI report has made a number of
recommendations in relation to these issues.
1.48
The final FSI Report recommends, at Recommendation 25,[46]
raising the competency of financial advice providers and the introduction of an
enhanced register of advisers. It also recommends at Recommendation 22,[47]
a proactive power for ASIC to intervene in relation to financial products,
their marketing and disclosure materials, consumer warnings and distribution,
and the power to ban products.
1.49
The final FSI report does not recommend a national exam for advisers
although notes that '...this could be considered if issues in adviser competency
persist.'[48]
1.50
Removing regulatory impediments to innovative product disclosure and
communication with consumers is recommended at Recommendation 23 as a way of
reducing the risk that consumers buy products unsuitable to their needs and to
allow for more effective communication with consumers.[49]
1.51
Recommendation 24 recommended better alignment of the interests of
financial firms with those of consumers by raising industry standards,
enhancing the power to ban individuals from management and ensuring
remuneration structures in life insurance and stockbroking do not affect the quality
of financial advice.[50]
1.52
The FSI final report made a number of recommendations to address what it
termed 'significant matters', including Recommendation 40: renaming 'general
advice' and requiring advisers and mortgage brokers to disclose ownership structures.[51]
The committee will consider these recommendations in more detail throughout
this report.
Lifting adviser qualifications as part of a system to improve advice
1.53
While the committee notes the important role that individual advisers
can play in ensuring that consumers and investors receive good quality advice
that is relevant to their individual circumstances, the committee recognises
that lifting the qualifications of advisers and the standards they are required
to meet is only one part of a more complex system. All parts of the system need
to be operating effectively to provide appropriate safeguards for consumers and
investors while allowing efficiency, innovation and growth within the industry.
1.54
The committee considers that Professor James Reason's model of accident
causation in the aviation industry provides a useful frame of reference for
understanding the role of individuals and organisations within a greater
system; in this case the financial services industry. Reason argues that in
order to provide appropriate risk management within a system, appropriate
defences need to be created. Rarely can a system be appropriately protected by
individual safeguards alone; there also needs to be appropriate organisational
or system-wide defences to reduce risk. Many layers of defence provide
protection against single failures but for an entire system to be adversely
effected, it requires 'the unlikely combination of several different factors to
penetrate the many protective layers...'.[52]
1.55
Using this analogy, lifting the qualifications of financial advisers and
the standards of advice provided to consumers and investors becomes just one
important defence mechanism to help reduce the risk of failure in the broader
system. Other defences must also be in place, such as the Register of Advisers,
ASIC having banning powers over management as well as advisers, an enforceable
code of professional ethics and professional conduct which detail ethical
dispositions and behaviours that prioritise the best interests of clients.
While outside of its current terms of reference, the committee notes that product
design and the design of remuneration structures in both vertically integrated
and independent settings has the potential to adversely affect the cultural
realities of the respective workplace within the financial services industry.
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