And they should be able to make a “holistic” assessment of other credit products packaged with a home loan in meeting the new best interests duty.

These are among the proposals included in draft guidance prepared by ASIC to give effect to new legislation that imposes a best interests obligation on brokers. The new duty, which applies from July 1, is in addition to responsible lending obligations

ASIC’s guidance includes its interpretation of the best interests obligation, its expectations for meeting those obligations and its approach the administering the system. It is seeking industry feedback.

The guidance is principles-based and does not include safe harbour provisions.

Information gathering. ASIC does not prescribe the appropriate information brokers should gather from their clients. Rather, it recommends a case-by-case approach.

It says: “The type and amount of information that a mortgage broker should gather to identify the consumer’s needs and objectives, and determine whether a credit contract will be in their best interests, varies depending on the consumer’s individual circumstances.”

Assessing best interests. ASIC recommends that brokers take a holistic view of products, with the cost of the loan a priority – interest rate, fees and charges and the size of repayments.

“We consider that cost is generally a factor brokers should prioritise. A failure to consider cost and investigate the lower cost options available to the consumer may be indicative of non-compliance.”

Non-cost considerations, such as loan features and accessibility, should also be assessed for the net benefits they offer.

Presenting information and recommendations. ASIC wants brokers to tailor the way they present product options and recommendations “to account for the consumer’s expectations”.

It is also emphasising the educative role of mortgage brokers. ASIC says it is important that consumers are helped to understand the options presented.

The legislation does not prescribe how many options should be presented to consumers. But ASIC says “some practices are not consistent with acting in the consumer’s best interests.”

It cites consumer research which shows that 58 per cent of consumers receive only one or two loan options.

Interaction with responsible lending obligations. According to the information memorandum accompanying the bill – Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures)) Bill 2019 – “there are circumstances where the mortgage broker may not have acted in a consumer’s best interests even if the responsible lending obligations were complied with.

“For example, even if a home loan product is ‘not unsuitable’, recommending it to the consumer might not be in the consumer’s best interests.”

ASIC says meeting responsible lending obligations is not necessarily sufficient to discharge a duty to act in someone’s best interests.

Brokers should be able to satisfy themselves that recommending from within their panel is in the consumer’s best interests. Consumers should be informed about which credit providers the broker has access to and which they do not.

Range of credit products. The broker must act in the best interests of the consumer not only in relation to the mortgage but also in relation to any other credit contracts for which they provide credit assistance. These might include credit cards and personal loans.

Brokers will be required to assess other credit products packaged with a home loan in meeting the new best interests duty.

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According to the latest Reserve Bank margin lending data, the number of margin loan client accounts grew for the first time since 2009. Accounts number increased from 98,000 in the June quarter last year to 111,000 in the September quarter.

Bell Financial Group has acquired two structured loan products – Equity Lever and Geared Equity Investments – from Macquarie Group.

The acquisitions increase the size of Bell’s loan book to $550 million.

The company says the value of the acquisitions is that will significantly increase its access to independent financial planners and provide new product for its stockbroking clients.

Researcher Investment Trends released a report on margin lending in January, saying more financial planners and brokers see the benefit for their clients in the product.

It says 87 per cent of stockbrokers believe their clients can benefit from the use of borrowings to boost investment returns – up from 72 percent in its 2018 survey. Among financial planners, 89 per cent believe their clients can benefit – up from 82 per cent in 2018.

Investment Trends research director Recep Peker said there were still significant barriers. Thirty per cent of brokers said the product was too risky for their clients. Other reasons for not using equity gearing was that clients did not understand it and that investors did not want to deal with margin calls.

Planners and brokers also said it required a “high level of effort” to sell the product and in many cases it was not worthwhile.

Peker said brokers and planners would like to see some product innovation, particularly if margin calls could be eliminated.

NAB has developed a product called Equity Builder, which operates more like a principal and interest investment property loan. To minimise risk, the portfolio must be broadly diversified and investments made in approved managed funds.

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The TPB hopes to hope to align its requirements with FASEA’s CPD activities as much as possible, but one industry commentator has questioned just how much this can be achieved.

The TPB is reviewing its policy on CPE for registered tax practitioners. It has issued a discussion paper and is looking for responses by March 18.

Its reasons for proposing longer CPE hours are that businesses are increasingly operating in an environment of continuous change, tax laws are always changing and other associations, including FASEA, require longer CPE hours.

TPB chief executive Michael O’Neill says: “The review is an opportunity for us to both understand how practitioners view the existing system and to obtain input into the process for defining CPE policy requirements.”

The Tax Agent Services Bill says: “Keeping up-to-date with developments in the relevant taxation laws and tax administration may require agents to undergo a certain minimum number of hours of tax-related continuing professional education per year as determined by the board.”

Meeting CPE requirements is a requirement for renewal of a tax agent’s registration.

Currently tax agents must complete a minimum of 10 hours a year and a minimum of 90 hours over three years. BAS agents must complete a minimum of five hours a year and a minimum of 45 hours over three years.

Tax (financial) advisers must complete a minimum of seven hours a year and 60 hours over three years.

A maximum of 25 per cent of CPE should be completed through relevant technical or professional reading.

After receiving initial feedback, the TPB says it is looking at aligning its CPE requirements with FASEA requirements. Another proposal is that the minimum CPE hours should be the same for all practitioner groups.

It is also considering a proposal that compliance with FASEA’s requirements would automatically satisfy the TPB’s CPE requirements for tax (financial) advisers.

The TPB says it takes a “pragmatic” approach. “For example, the TPB acknowledges that many tax practitioners are members of recognised professional associations that offer a range of relevant CPE activities, such as tax technical topics, practice management and cyber security.”

These would be included as relevant CPE activities for the TPB’s requirements.

“Further, while noting that compliance with FASEA’s CPD requirements does not automatically equate to compliance with the TPB’s CPE requirements for tax (financial) advisers, the TPB also understands a likely outcome is that tax (financial) advisers who complete CPD activities that meet the CPD requirements of FASEA are also likely to meet the TPB’s CPE requirements.”

Rob Lavery, technical and policy manager at knowIT digital says that, while the TPB consultation paper proposes that advisers who meet FASEA CPD requirements would likely meet the TPB’s CPE requirements, the situation is not clear cut.

Lavery says: “There is a caveat: FASEA CPD activities must be able to be demonstrably linked to the adviser’s tax (financial) advice services to qualify as CPE under the TPBs requirements.

“Much of an adviser’s FASEA CPD activities will not relate to providing tax (financial) adviser services. In the technical competence CPD area, training on topics such as aged care, social security and some investments may contain no tax component.”

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The deal, which is subject to Chant West shareholder approval, is worth $12 million and is expected to be competed by April.

Chant West Holdings will retain Enzumo, a financial planning technology business. The company says: “Enzumo conducts in-depth analysis of financial planning businesses and creates tailored technology solutions to help them operate more efficiently and compliantly.”

Zenith chief executive David Wright says the combined Zenith and Chant West businesses will have more than 70 staff, with offices in Sydney and Melbourne.

Wright says: “This is a logical fit for our growth plans to better serve an expanded client base with unbiased research, consultancy and online tools, especially at a time when the broader super, pension and advice markets are undergoing considerable change.”

The combined client base will include super funds, financial planning groups and fund managers.

According to Chant West Holdings’ 2018/19 financial report, the Enzumo business generated $1.9 million of revenue and made a pre-tax profit of $84,000.

The Chant West business had revenue of $6.5 million and made a pre-tax profit of $1.5 million. The bulk of Chant West’s revenue comes from subscriptions.

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As part of its education standards for financial advisers, FASEA approved applications for the recognition of coursework to attain a professional designation from the Association of Financial Advisers and the Stockbrokers and Financial Advisers Association.

Advisers who have completed coursework to attain the FChFP or ChLP designation between May 2009 and June 2013, offered by the AFA, have been awarded one credit recognition for prior learning (RPL).

Advisers who have completed a Professional Diploma in Stockbroking coursework to attain the SAFAA Specialist designation from 2001, offered by SAFAA, have been awarded one credit RPL.

The approvals are recognition of the course content and assessments advisers are required to undertake to complete the programs.

A maximum of two credits towards completion of higher education requirements can be awarded for an existing adviser who has completed one or more of the prescribed approved courses to attain a professional designation.

FASEA has approved credits for coursework to attain a professional designation for eight professional associations.

FASEA also approved the Financial Advice Regulatory and Legal Obligations and the Behavioural Finance Client and Consumer Behaviour bridging courses at Swinburne University.

The bridging courses are available for existing advisers to meet the education standard. They will be added to a future Degree, Qualifications and Courses legislative instrument.

FASEA chief executive Stephen Glenfield says: “The approval of these additional courses builds on the body of courses approved by FASEA and provides additional choice to advisers seeking to meet the education standards.”

FASEA has approved a total of 66 historical courses, 63 current bachelor or higher degrees and 27 bridging courses.

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The regulatory sandbox is designed to allow companies to test new and innovative fintech products and services without the need for an Australian financial services licence or an Australian credit licence.

When the sandbox scheme was launched in 2016, the licensing exemption was for 12 months with up to 100 retail clients and total exposure of no more than $5 million.

At the time, ASIC said it recognised that start-up businesses face a couple of problems when dealing with regulators: the regulatory process slows their speed to market; and they may lack required organisational competence to provide a licensed financial service.

But with its fairly limited scope there was not a lot of take-up. The new law is designed to enhance the regulatory sandbox by allowing more businesses to test a wider range of products and services, and for longer periods than 12 months.

The explanatory memorandum accompanying the bill says: “The new regulation recognises that innovation is not limited to new offerings previously unseen in the market, but may encompass improvements to specific elements of a product or service, draw on practices from other industries or combine elements together in new ways to deliver benefits to consumers.”

ASIC has the power to make decisions regarding when exemptions start and finish. The regulator also has the power to cancel a licensing exemption if the company fails to meet prescribed conditions.

“ASIC can respond to identified non-compliance with prescribed conditions and prevent misconduct or fraudulent behaviour in the business’s provision of products or services to consumers,” the explanatory memorandum says.

The new law also gives the government flexibility to change regulations in response to market conditions. And it includes a requirement that the relevant minister arrange for an independent review of the scheme.

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It is one of several deals the increasingly active investment company has done in recent months.

Ralton will continue to operate its current investment business, which includes four Australian equity SMA strategies. Portfolio manager Will Riggall and Andrew Garside will continue with Ralton.

Following the completion of the deal 360 Capital will have $600 million of funds under management and an investor base of 8,000.

360 Capital’s head of public and private equity Dennison Hambling says the company will look for other consolidation opportunities.

Earlier in the month, 360 Capital launched Cambridge Investment Partners, which will offer capital raising, underwriting, M&A, IPO and secondary offering management, restructuring and other advisory services.

Cambridge is headed by Adam Coughlan. He and his team previously worked together for four years at Walsh & Co.

360 Capital managing director Tony Pitt says: “The addition of the Cambridge team is a reflection of our adaptation to changing market conditions, broadening our platform and strategies to provide investors with access to a more diverse offering and income base.”

In December 360 Capital and related entities took a 19.9 per cent holding in Velocity Property Group, a developer of property syndicates.

Also in December, the group announced that it had set up a credit income fund, which it plans to list on the ASX this year.

The fund is led by the group’s head of private credit Chris Chase, who says it will target a return of 5 per cent above the RBA cash rate.

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Cyndy Pagliaro, a senior research analyst at Vanguard Investment Strategy group, says the list is a good illustration that investors are looking for emotional value as well financial value.

Vanguard then asked investors to say how well their planner matched the attributes they said contributed to value.

Pagliaro says respondents, most of whom were advised clients, rated the financial advice they received highly, with 57 per cent saying it was very valuable and 31 per cent saying it was valuable.

“These were good responses but it still leaves lots of opportunity,” she says.

“What we learned was that emotion is a critical component of value, making up about 40 per cent of perceived value,” she says.

Pagliaro says advice needs to take a more holistic approach to include emotional value, but she concedes it is hard to do.

“We know it is there but we are not sure what drives it. That is what prompted our research.

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Respondents to the MetLife Adviser-Client Relationship Report 2019 cited high fees, lack of affordability and “no ongoing need” as the main reasons for considering a change to their planner arrangements.

They also cited “lack of contact” as an issue. Jeff Scott, MetLife Australia head of advice strategy, says: “Annual reviews give clients the opportunity to have their questions answered by advisers and to seek reassurance that the advice and financial products they are receiving are best suited to their needs at that point in their lives.”

Among those consumers who undertook a review in the last 12 months, 63 per cent rated the experience “very good” or “excellent”. Those people are more likely to recommend their adviser than those who do not have annual reviews.

Half of the people looking for new adviser say they would prefer to use an independent adviser.

SME owners showed a preference for fees over commissions for insurance advice. Thirty-five per cent say they are less likely to trust an adviser who is paid a commission.

Seventy-eight per cent say they would prefer to pay an upfront fee for service for advice. When asked what they would be prepared to pay for insurance advice the average amount was $1700.

Scott says: “This much lower than the average cost to produce comprehensive insurance advice and indicates that significant education is required to help clients frame a realistic expectation around the value of the services advisers are providing.”

Thirty-nine per cent of consumers who have life insurance through an adviser say they initiated discussions in order to “protect their family” or saw an adviser following a recommendation from a family member or friend.

Close to half of consumers with life insurance say they are concerned about whether the insurance company would pay out in the event of a claim, despite ASIC data that shows payout rates are high.

Among “consumer potentials”, who say they are likely to see an adviser over the next couple of years, 25 per cent say cost is a barrier. In the 2018 survey, 18 per cent cited cost as a barrier.

The report is based on a survey of 797 consumers and 213 small business owners who have used a financial planner and 288 “consumer potentials”.

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It also harmonises ASIC’s search warrant powers and enhances the regulator’s ability to access certain telecommunications information.

The Financial Sector Reform (Hayne Royal Commission Response – Stronger Regulators (2019 Measures)) Act includes the following changes:

Search warrants. ASIC has had a range of search warrant powers contained in different pieces of legislation. The powers were “not as practical or effective as they should be”. Now they are harmonised in the ASIC Act.

The new law also incorporates many of the ancillary powers in the Crimes Act to beef up ASIC’s powers. For example, ASIC now has power to take photographs and make video recordings, use electronic equipment to access data and move devices to another place for processing.

Telecommunications intercept. ASIC was not listed as an intercept agency under the Telecommunications Interception and Access Act, which meant that it could not apply for warrants to intercept telecommunications and could not share information with intercept agencies.

The new law allows interception agencies to provide ASIC with information about an interception warrant or lawfully intercepted information, where the information relates to an offence that ASIC can investigate.

Licensing and false or misleading documents. Under the old law an applicant for an Australian financial services licence had to be “of good fame and character”, while an applicant for an Australia credit licence had to be “fit and proper”. This anomaly created some practical problems.

Under the new law applicants for both licences must be fit and proper. The fit and proper persons test has been widened to cover all officers, partners and trustees of an applicant. The test must be satisfied on an ongoing basis.

ASIC will greater power to demand information about an applicant, as well as the power to refuse to grant a licence when a material particular in an application is false or misleading.

Banning orders. The new law expands the grounds on which ASIC can make a banning order, allowing it to take a broader range of activities into account when determining non-compliance with financial services laws.

The existing grounds for banning a licensee include a finding that a person is “not of good fame and character”, is not adequately trained, is not competent to provide a financial service or is insolvent.

New grounds include: the person has been linked to a refusal or failure to give effect to an AFCA determination on more than one occasion; on more than one occasion, the person has been an officer of a corporation that was unable to pay its debts.

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