Alphabet soup for the masses
We are not blazing the cause for amputations, or public beheadings for that matter, yet there can be no quibbling over the logic that prosecution and punishment are a deterrent for bad behaviour.
In the financial arena in Australia, however, it is the victim rather than the perpetrator who is increasingly at fault. That is why we continue to roll-out the "investor education" solution.
For swindlers, our "disclosure" regime is a thing of beauty. As long as - as stipulated in Sub-clause 3(c), Section F of the Material Contracts notes in the rear of the Product Disclosure Statement - it is disclosed that your savings may be channelled to an entity in the Cayman Islands via a related party of the scheme promoter in Hong Kong, then the scheme is compliant.
Disclosure makes fools of us all.
The thing is, according to the policy classes, that the public is not educated enough. And this is why there is an undeniable policy sway, away from simply busting crooks and penalising breaches, to flooding the world with pamphlets and seminars. Besides, education is cheap and easy while prosecution is hard and expensive.
Let's get down to business then.
Have you ever heard of the Commonwealth Financial Counselling Program (CFCP)? How about the joint Australian Financial Counselling and Credit Reform Association (AFCCRA)?
Does Financial Counselling Australia (FCA) ring a bell? You must have heard of the Australian Communications Consumer Action Network (ACCAN) standing committee on consumer affairs? Surely you are au fait with the achievements of the ASIC Consumer Advisory Panel (ASICCAP).
Perhaps you are asleep already. If not, how about the Helping Our Kids Understand Finances - Professional Learning and MoneySmart Schools (HOKUF-PLMSS)?
Er ... the Commonwealth Consumer Affairs Advisory Council (CCAAC) perchance? Any stakeholder engagement there? Does the National Financial Literacy Strategy (NFLS) jog any memories then?
Well, you paid for it all, sometimes at $5000 a pop for a country town seminar by an investment guru in front of a crowd of eight.
In creating compulsory superannuation, the government not only spawned a fat ecosystem of financial intermediaries, but a policy and consumer protection elite, too.
If you look up the directors and executives on the aforementioned gravy train of initials, you will find the same names bob up time and again, and often cross over into industry peak-body-land, too. Take FOS, the Financial Ombudsman Service, for instance.
No doubt these people are worthy and in most cases dedicated. But the whole approach is wrong.
It is simply the government passing the regulation buck to the poor old consumer. Even sophisticated investors get dudded. The success of this DIY regulation is evinced in a generation of lost savings via debentures, mortgage funds, dodgy sharemarket plays and MIS schemes.
Yet now, we have another one on the boil. The latest initiative in the consumer education and advocacy space is the Choice Super Centre proposal, billed by the ABC's 7.30 as the "new super watchdog".
Canberra has committed $10 million to Choice to set up a company and Choice has committed to match it with $10 million from industry.
Choice was a tad coy on who might be involved but a clip on 7.30 showed former Macquarie Bank chief Allan Moss, former ASIC chairman-turned-liquidator Tony D'Aloisio and former Victorian premier Steve Bracks were somehow in the mix.
We can surely look forward to more reams of strategy, workshops complemented by forums, vision statements and media releases.
Regulation by pamphlets is how Denise Brailey describes it. Brailey, with nary a donation from the public purse, has worked her day job for years and looked after thousand of victims of financial fraud in her spare time.
Anybody interested in where the next wave of action might be, can Google her website. Unlike the consumer protection elite, it is pretty much Brailey, on her lonesome, who tells it like it is.
Apparently the mission of the Super Centre is not only to further educate the masses but to provide policy and "advocacy" too. This means saying "good product/bad product", in which case they will be in need of a few lawyers, not to mention forensic types who can figure out the Byzantine financial engineering behind new-fangled derivative products.
Even if they got that right, and had the intestinal fortitude to call a product a rip-off, what of the conflict of interest in an industry-funded advisory service with powerful financial services types on board?
We saw the kerfuffle on Thursday over freedom-of-information revelations that the government stripped out $500 million in dividends from the Reserve Bank, against the advice of its governor, Glenn Stevens.
It is worth contemplating, too, that ASIC is a colossal cash cow for Canberra and, whoever the Sir Humphrey Appleby is down there, his advice would be, "Yes Minister, we earn billions from the regulators. They fund the needy, not to mention our most urgent budgetary needs. Investor education is by far the most efficient weapon in our crusade against white collar crime ... it only costs us a few million, Minister."
Frequently Asked Questions about this Article…
The article argues that relying on investor education—pamphlets, seminars and workshops—has become a substitute for firm enforcement. It says ‘education’ is cheap and politically convenient, but leaves consumers shouldering the burden of policing bad actors instead of using stronger prosecution and penalties as real deterrents.
The article is critical of disclosure regimes, saying they can be a smokescreen: as long as a PDS discloses that funds may be channelled offshore (for example, via related parties in places like the Cayman Islands or Hong Kong), schemes are often deemed ‘compliant’—even if that disclosure doesn’t protect investors from poor outcomes.
The article describes the Choice Super Centre as a new consumer-focused initiative billed as a ‘super watchdog’. The government committed $10 million to set it up and Choice has reportedly matched that with $10 million of industry funding, raising questions about independence and industry influence.
Yes — the article flags conflict-of-interest risks when consumer-advisory or advocacy services are partly industry-funded and include powerful financial-sector figures on their boards. It suggests that industry funding can complicate an advocacy group’s ability to call a product a rip-off without legal or forensic support.
The article lists numerous bodies and initiatives — for example, the Commonwealth Financial Counselling Program (CFCP), AFCCRA, Financial Counselling Australia (FCA), ACCAN, ASIC Consumer Advisory Panel (ASICCAP), MoneySmart schools initiatives and the National Financial Literacy Strategy (NFLS). The critique is that this sprawling alphabet of agencies has created a policy and consumer-protection ‘elite’ that often recycles the same people and relies on education rather than stronger enforcement.
The article says compulsory superannuation spawned a large ecosystem of financial intermediaries and a corresponding policy and consumer-protection elite. That growth, it argues, has contributed to overlapping roles, potential capture and an industry where the same executives and directors reappear across peak bodies and advisory panels.
The article clearly favours enforcement: it argues that prosecution and meaningful penalties are stronger deterrents to bad behaviour than relying mainly on consumer education. It contends that regulation-by-pamphlets leaves victims exposed and that tougher action against crooks is needed.
From the article: be sceptical of complex disclosure that merely shifts risk offshore; question the independence of industry-funded advocacy; beware high-cost seminars and guru pitches; seek genuinely independent advice or advocacy (the article highlights independent campaigners such as Denise Brailey); and recognise that many regulators prefer education because it is cheaper, so investors may need to be extra vigilant.
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