The newspapers are focused on the call for a royal commission into ASIC's inability to act as an effective regulator, yet a royal commission will change nothing. What ASIC needs is a bigger budget, not budget cuts. Having an effective corporate regulator is essential to stop insider trading and other negligent or even fraudulent conduct distorting the sharemarket.
As private investors managing your own savings (whether in an SMSF or otherwise) this absolutely impacts you, so here's a short primer on what is going on:
ASIC has morphed from a toothless tiger to a toothless bandicoot.
My turn of phrase may amuse, but I'm not joking. ASIC has never seemed to have the big corporations quivering. Former ASIC lawyer James Wheeldon claims that the regulator maintained "a culture of cosiness" with big business. Wheeldon says he was "quite explicitly told" that "you can't [regulate] on the merits if that leads to us saying no to the big end of town." I can't verify those claims, of course, but the airing of them alone should be reason for concern. Indeed, it wasn't until the press began hounding ASIC about the fraud perpetrated by Commonwealth Bank of Australia (ASX: CBA) financial planners that it took significant action. Commonwealth Bank whistleblower Jeff Morris claimed on ABC News 24: "Trying to get [ASIC] to act on this matter when I gave them clear evidence was like flogging a dead horse."
The government is currently winding back the Future of Financial Advice (FOFA) reforms that were designed to offer greater protection for investors.
In my opinion commissions and management fees do a disservice to investors. Management fees encourage funds to replicate the index and focus on marketing, while commissions are simply part of that marketing effort. By paying a small portion of their fee to advisers who tout their products, some funds make good money without adding much value. Obviously, high commissions encourage people to take control of their own finances and subscribe to The Motley Fool, but I oppose them nonetheless because of the risk that commissions encourage very poor advice.
However, the main problem is enforcement, not the law itself
Whistleblower hero Jeff Morris subscribes to the view that the regulator has sufficient powers but "ASIC doesn't use them properly." This was also the view of the majority of the senate committee reviewing the Commonwealth Bank fraud and ASIC's lethargic response to it. The committee found that, "ASIC has shown that it is reluctant to actively pursue misconduct … rather, it appears to accept the information and assurances the CBA provides without question."
