As artificial intelligence becomes more prolific in modern society, scammers are using the tool to produce highly convincing scams that leave even the experts second-guessing. The Commission’s taken down more than 10,000 investment scam websites and online advertisements and we are continuing to do a big piece of work to ensure banks are protecting consumers.  

In this episode of Inside ASIC we caught up with:  

• Senior Manager of Enforcement, Sarah Bower 

• Consumer advocate Steph Tonkin 

• Senior lawyer, scams, Sam Riggall

⁠24-280MR ASIC sues HSBC Australia alleging failures to adequately protect customers from scams | ASIC⁠ 

We dive into a report ASIC’s just released about what insurers need to do to lift their game and look at why the loss of a home or property is just the start of what can be a long and stressful battle for Australians to rebuild disrupted lives. 

In this episode of Inside ASIC we caught up with: 

• ASIC Commissioner Alan Kirkland 

• Julia Davis Senior Policy & Communications Officer at the Financial Rights Legal Centre 

The content and information is not intended to be financial advice and that consumers should seek independent financial advice on any matters discussed.

In this episode of Inside ASIC we’re going to be looking at some of the work being driven by the specialist Indigenous Outreach Program team within ASIC. It’s not work that gets a lot of attention in the national media - but it’s a critical piece of what the Commission does when serious financial harm is at stake. 

• Danille Abbott - who’s a senior manager of the Indigenous Outreach Program.   

• Jessica Naimo is a senior lawyer at ASIC

• Senior Financial counsellor and Boandik woman Bettina Cooper who helped build the First Nations debt helpline, called Mob Strong Debt Help. 

⁠24-084MR ASIC orders end to Centrepay credit arrangements in Urban Rampage stores | ASIC⁠ 

Further information: 

⁠ASIC’s Indigenous Outreach Program | ASIC⁠  

Moneysmart: ⁠Indigenous - Moneysmart.gov.au⁠  

The podcast and information contained is not intended to be financial advice and consumers should seek independent financial advice on any matters discussed.

For ASIC this has been a serious focus as many financial products like super funds have made green claims about how they invest… but simply can’t stack them up.  

Vanguard Investments Australia was ordered to pay a record $12.9 million penalty for making misleading claims, Mercer Super was ordered to pay $11.3 million, and Active Super copped a penalty of $10.5 million for greenwashing misconduct. 

This episode features:

• Marita Hogan - who’s the Senior Executive Leader, Enforcement and Compliance at ASIC  

• Andrei Bacu is an ASIC Analyst with the superannuation team 

• Professor Jeremy Moss from the University of New South Wales 

ASIC Media Release: ⁠⁠24-061MR ASIC wins first greenwashing civil penalty action against Vanguard | ASIC⁠⁠  The podcast and information contained is not intended to be financial advice and consumers should seek independent financial advice on any matters discussed.

Through superannuation investments, many Australians have indirect exposure to private assets. Private markets operate differently than public markets and are inherently less transparent.  

In this episode of Inside ASIC we are all about understanding private versus public markets. Why it matters - and what’s the role of our corporate regulator when these deals are being done behind closed doors, with: 

• Senior Executive Leader Market Conduct Andrew Templer  

• Senior Executive Leader Strategic Projects Jane Eccleston   

• Carole Comerton-Forde - Professor of Finance at Melbourne University 

In this episode of Inside ASIC we caught up with: 

• Pippa Lane, Acting Senior Executive Leader - Superannuation and Life Insurance at ASIC 
• Xavier O’Halloran, the CEO of Super Consumers Australia  

The content and information is not intended to be financial advice and that consumers should seek independent financial advice on any matters discussed.

In Season 2 of Inside ASIC we’re going to keep pulling back the curtain on the forensic work happening at the Commission.

Over 6 episodes we’ll hear from key players inside ASIC on everything from protecting consumers from increasingly sophisticated scams… to cracking down on greenwashing - and holding super funds to account.

For more information about the review, download ASIC Report 633 Holes in the safety net: a review of TPD insurance claims and read ASIC media release 19-281MR ASIC calls on insurers and trustees to take action to improve consumer outcomes from total and permanent disability insurance.

For more information about the review, download ASIC Report 621 – Roadblocks and roundabouts: A review of car insurance claim investigations and read ASIC media release 19-172MR – ASIC’s review finds car insurance investigations treat consumers unfairly.

Read ASIC media release 19-243MR - Gold Coast director and property developer sentenced to eight years' imprisonment - for more information.

In this episode with ASIC Deputy Chair Daniel Crennan QC, we explore ASIC’s Enforcement Update (January to June 2019), ASIC’s Office of Enforcement and work to strengthen ASIC’s enforcement effectiveness by accelerating court-based enforcement matters.

James Gibbs stole $4.88 million from his clients when he was acting as their financial adviser. His clients trusted him with their savings, with their money to be used for their retirements, and he devastatingly broke that trust by using that money for his own purposes.

In this episode, we hear from Dallas, one of Mr Gibbs' victims who helped build ASIC's case, as well as ASIC investigator, Chris Rowe.

Read ASIC media release's for more information: 19-179MR Former Adelaide financial adviser sentenced to 10 years imprisonment

Steven Oakes was sentenced on 25 June 2019 in the County Court at Melbourne to a total effective sentence of three years imprisonment, and ordered that he be released after serving 18 months of the term of imprisonment, on his own recognisance to be of good behaviour for 18 months, after pleading guilty to a total of 11 charges for insider trading, unauthorised access to data with the intention to commit a serious offence (insider trading) and the alteration of electronic devices required by ASIC. 

In this episode, we hear from the investigators behind ASIC’s case - Peter Ridgley and Anthony Vardy.

For more information about ASIC's case, read our media release (19-153MR) and download an infographic on our website.

ASIC investigators Kaan Finney and David McArthur explain how ponzi schemes work, how operators attract investors, how ASIC investigates and shuts down these schemes and most importantly, how can you can avoid getting caught up in a scheme.

A ponzi scheme is an investment scam where the promoter convinces people to invest in the scheme. Money is deposited by early investors and used to pay the first round of returns. However, new money invested is used to pay older returns to investors. People are led to believe there is an investment because of this when often there actually is no investment at all or the investment is not what they think it is.

There are  practical tips on how to avoid ponzi schemes and other types of investment scams on ASIC’s MoneySmart website or you can subscribe to our media releases to find out about the latest matters we are investigating at ASIC.

And if you have feedback on this podcast, we’d love to hear your thoughts. Send us a tweet to @ASICmedia

A copy of the report - outlining key actions taken over the past six months to enforce the law and support our enforcement objectives - can be found here.

The report also covers ongoing areas for particular focus, including ASIC Deputy Chair Daniel Crennan QC’s discussion of recent reforms enabling ASIC to pursue harsher civil penalties and criminal sanctions against banks, their executives and others who have breached corporate and financial services law.

• a design and distribution obligations regime for financial services firms; and
• a product intervention power for ASIC

The design and distribution obligations will bring accountability for issuers and distributors to design, market and distribute financial and credit products that meet consumer needs. Phased in over two years, this will require issuers to identify in advance the consumers for whom their products are appropriate, and direct distribution to that target market.

The product intervention power will strengthen ASIC’s consumer protection toolkit by equipping it with the power to intervene where there is a risk of significant consumer detriment. To take effect immediately, this will better enable ASIC to prevent or mitigate significant harms to consumers.

These reforms were recommended by the Financial System Inquiry in 2014 and represent a fundamental shift away from relying predominantly on disclosure to drive good consumer outcomes.  

View the ASIC media release (19-055MR) for more information

Mr Nakhl was convicted on eight charges (18-178MR), brought by ASIC, of engaging in dishonest conduct with investor funds. The conduct affected 12 investors while Mr Nakhl was a representative of Australian Financial Services Limited (in liquidation) and as sole director of SydFA Pty Ltd (deregistered).

The court found Mr Nakhl advised clients to set up self-managed superannuation funds and to invest their superannuation and other funds in products such as shares, managed funds and high interest rate bank accounts. Rather than investing the 12 investors’ funds in these products, Mr Nakhl used these funds 'as he pleased' and for his own purposes.

Mr Nakhl then lied to the investors, telling them that he had invested their funds in accordance with his advice and that their investments were performing well. Mr Nakhl also tried to cover up his wrongdoing by having these 12 investors sign documents that supposedly authorised Mr Nakhl to use the funds in the way he did.

These 12 investors allowed Mr Nakhl to invest approximately $6.7 million on their behalf. Mr Nakhl lost approximately $5.1 million of these invested funds.

You can read the full transcipt below.

TRANSCRIPT

HOST: Hello, and welcome to the official podcast of the Australian Securities and Investments Commission.

In today's episode, we'll be discussing ASIC’s review of climate risk disclosure by listed companies in Australia.

My name is HOST Heilbuth and with me this time around is ASIC Commissioner, John Price. John, thanks for your time.

JOHN: Thanks very much.

HOST: Before we talk about ASIC’s report, can you define what we mean by climate risk?

JOHN: A global Task Force on Climate-related Financial Disclosures puts climate-related risks into two main categories. The first is risks related to the transition to a lower-carbon economy. The transition includes policy, legal, technology and market changes – and this presents a number of risks to Australian companies. The second is a series of risks related to the physical impacts that result from climate change. This can be extreme weather and shifts in climate patterns, such as sea level rises and sustained higher temperatures.

HOST: What role does ASIC play in this space?

JOHN: Firstly, we are very focussed on encouraging strong and effective corporate governance. We consider the management of issues such as climate change begins with good corporate governance. Within listed companies, this should be led by directors and senior management. Companies that have effective corporate governance practices are better equipped to develop and implement effective strategies to manage risks and opportunities, and that of course includes climate risk. Secondly, we are also focussed on disclosure. Where the law requires it, ASIC is focussed on making sure that companies disclose material climate change risks. Disclosure of risks – like climate change and other risks – helps investors to be better informed when they make their important investment decisions.

HOST: ASIC’s surveillance project examined how listed companies disclose climate risk. What did ASIC find?

JOHN: What we found is that listed companies need to do more to comply with their disclosure obligations, especially outside of the top-200 listed companies.

Of the 60 listed companies in our ASX 300 sample, when we did our work around climate change, 17% identified climate risks as material risk to their business.

While most of the reviewed ASX 100 entities had considered climate change risk to the company’s business, at least to some extent, disclosure practices were fragmented, inconsistent and patchy.

As part of our surveillance, it was often difficult to know whether general references to climate change risk related to physical or transition climate risks, or both.

These fragmented climate risk disclosure practices, we think, make it difficult for investors to compare between companies.

HOST: What can listed companies do to properly disclose climate risks? What do we expect to see from business?

JOHN: We recognise that climate risk disclosure practices are still evolving (not only here in Australia but internationally). What we do recommend is that directors and advisers of listed companies consider climate risk both as a short-term and a long-term risk, and directors and officers also continually reassess existing and emerging risks and how they apply to the company’s business. Also, listed companies need strong and effective corporate governance. This includes active and informed engagement by the board. Boards play a critical role to identify and manage risk. And finally, it goes without saying that listed companies must comply with the law. Directors of listed companies should carefully consider the requirements relating to operating and financial review – or the OFR as it’s commonly called – as it prescribes certain disclosures under the Corporations Act. In fact, the law requires an OFR to include a discussion of climate risk when it could affect a company’s achievement of its financial performance or desired outcomes. Depending on the circumstances, disclosure of climate risk may also be required by the law in other circumstances, such as in a fundraising document like a prospectus or in a continuous disclosure announcement.

HOST: And John, can you tell us what type of information must be disclosed to investors?

JOHN: Listed companies should disclose useful information to investors – that’s the first rule of thumb. The voluntary disclosure recommendations issued by a body called the TCFD are specifically designed to help companies produce information that is useful for investors. We do not consider there is any legal or policy impediment to listed companies reporting under TCFD recommendations provided that the disclosure is not misleading or deceptive and is based on appropriate evidence available at that time. We also recommend that listed companies with material exposure to climate risk consider reporting under the TCFD framework. In March 2018, the Australian Government released its response to a 2017 report on Carbon Risk issued by the Senate Economics References Committee. The Government, in that response, encouraged stakeholders to consider the final TCFD report and its various recommendations. ASIC is closely monitoring developments and we will continue to look at this closely as market practice develops over time.

HOST: Where can listeners find more information?

JOHN: I’d strongly encourage people to refer to ASIC’s REPORT 593 on Climate risk disclosure by Australia’s listed companies can be downloaded from our website – asic.gov.au

HOST: Thanks John. And we’ll be back with another episode of ASIC’s podcast shortly.

Read the Report

Consultation Paper media release

Review into Credit Card lending media release

Transcript below:

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Lara Heilbuth: Hello, and welcome to the official podcast of the Australian Securities and Investments Commission. In today's episode we'll be discussing ASIC’s review of the credit card market. My name is Lara Heilbuth and with me this time around is Senior Executive Leader of Deposit Takers, Credit and Insurers at ASIC, Michael Saadat. Michael, thanks very much for your time.

Michael Saadat: Thank you Lara.

Lara Heilbuth: So, ASIC has had a look at the credit card market – can you describe the market for us?

Michael Saadat: Yeah sure thing. We’ve done a really big review of the credit card market and the report that we’ve published has lots of really interesting information in it. But just to give you some of the highlights.

What we found as part of this review is that there were over 14 million open credit card accounts in Australia which has increased of over 300,000 since 2012. On those accounts, there’s about $45 billion in outstanding balances; and approximately $31 billion in balances on credit cards that is incurring interest charges.

Consumers were charged over $1.5 billion in fees each year, including annual fees, late payment fees and other amounts for credit card usage.

Lara Heilbuth: And what has ASIC’s review focussed on?

Michael Saadat: We had 3 main focus areas as part of our review.

The first was consumer outcomes. We wanted to identify the debt outcomes for consumers from their credit card products over time, with a particular attention to consumers who are in arrears, who carry debt at a high interest rate for a long period, or repeatedly make low repayments.

Secondly, we wanted to look at balance transfers. We looked at when and how balance transfers are taken out, the repayment experience and their effect on credit limits and debt levels over time.

And thirdly, we wanted to assess the effectiveness of key law reforms that were put in place a couple of years ago, including things like requirements for standardising how payments are allocated to outstanding balances.

Lara Heilbuth: You mentioned you looked at consumer outcomes, how bad is credit card debt in Australia? And are consumers using credit cards wisely?

Michael Saadat: What we found is that about 18% of people with a credit card are struggling with that credit card. And what we mean by that is that they are either missing payments, carrying a lot of debt or repeatedly repaying small amounts. This includes almost 550,000 people in arrears, an additional 930,000 in persistent debt and an additional 435,000 people who make repeated low repayments.

And the reason we’ve looked at this group of consumers quite closely is because credit card products can be quite expensive and if you use a credit card in a way that it is not designed then you can end up paying quite a lot of interest over quite a long period and you can take a very, very long time to pay down your debt.

And what we did was we identified that there were three groups of consumers at the greatest risk of falling into problematic debt, and that included young people who were more likely to have failed to make repayments on their credit cards; people with multiple cards were more likely to be struggling with credit card debt; and people who transfer balances are also at greater risk.

Lara Heilbuth: Ok so balance transfers have been described as a debt trap. Are they?

Michael Saadat: We looked at balance transfers quite closely as part of this review.

Balance transfers allow consumers to transfer some or all of their credit card debt from one card to another. And through the review we looked at over 1 million balance transfers.

We looked at balance transfers in detail because the Senate Inquiry into credit cards in 2015 had said that they could be a ‘debt trap’ for consumers.

And what is meant by a debt trap is when: you transfer a balance to a new card; you keep and spend on the old card; and also spend on the new card; and as a result of all of that your total debt increases.

We found that a majority of people actually reduce their debt after taking out a Balance Transfer, but a sizeable minority, around 1 in 3 consumers wind up owing substantially more debt.

The figures show that after a balance transfer, around 32% of consumers increased their debt by 10% or more and about 16% increased their debt by 50% or more which was quite concerning.

A larger proportion of people who transfer balances several times wind up with more debt. So the ‘debt trap’ risk is real for some people.

However, balance transfers can be good for consumers, particularly if they reduce the risk of building up more credit card debt by cancelling old credit cards after transferring balances, and stopping their spending on credit cards after making those transfers.

Lara Heilbuth: Given the number of people in Australia who have a credit card, what does ASIC think needs to be done to protect consumers?

Michael Saadat: For starters, we think credit providers could be doing more to make balance transfers better for consumers. And that includes through things like providing reminders to make the consumer aware when the promotional period is about to end to help them avoid paying a higher rate of interest on any outstanding debt. And this is really important because consumers might take out a balance transfer for 12 or 18 or 24 months and when that period comes to an end the promotional interest rate could go from 0% to 20%.

The second thing is we think credit providers can design products to take into account additional spending so that people are not paying higher interest on the additional spending they do do on the new card.

And finally we think that credit providers can also prompt consumers to close credit cards that they have transferred their debt from.

And on that last one, the Government’s recent reforms will make it much easier for consumers to cancel their credit cards including by requesting cancellation online and we think this is actually really positive.

We also think lenders can do more to assist consumers by taking proactive steps to address problematic credit card debt and situations where consumers are in products that don’t suit their needs, and also not allow consumers to go over their credit card limit by too much and by not allowing them to consistently go over limit with their credit card.

These are things that credit providers can already do and we saw some credit providers taking some initial steps to do this, but we think there’s much more that can be done proactively by credit providers.

The other thing to mention is that we’re consulting on a new power that we have to tighten the responsible lending laws. Under our proposal credit providers will need to check that a consumer can repay the limit on a credit card within three years.

The point of this is to make sure that people are not given too much credit up front and that the credit card debt can be manageable.

So we’re consulting and we’re looking for stakeholders to provide us with feedback on this proposal.

Lara Heilbuth: Great. So how did ASIC gather all this information to inform your review?

We gathered both quantitative and qualitative data as part of this review.

So the quantitative data we gathered, we used our information gathering powers to require 12 lenders, who cover over 95% of the market, to provide us with data on their customers over a 5 year period. We collected over 600 data points on each of the 20 million accounts that were open in the period of our review.

And what we did was that we linked the data so we could see how individuals moved balances between lenders over time, and this helped us understand the big picture.

The qualitative data we collected was also significant. We asked the 12 lenders 51 questions about their existing practices around responsible lending, hardship, the availability of balance transfers and the proactive action that they take to assist consumers.

And finally we commissioned consumer research about the use of balance transfers. This involved face-to-face and telephone interviews as well as an online survey that was completed by around 800 consumers.

The information that we gathered shows that credit card lenders should be doing more to assist consumers and we’ll be watching closely to see that lenders are in fact taking more proactive steps to help people with problematic debt and do more to make sure consumers end up with products that better suit their needs.

Consumers can also learn from our findings and help themselves by cancelling cards they are no longer using and use balance transfers in a way that actually reduces their debt. 

Lara Heilbuth: So where can people go for more information?

Michael Saadat: The first place people should go is ASIC’s MoneySmart website which has lots of information and tips about using a credit card, including how to avoid costly fees and interest.

It’s a great resource to use. There’s information about balance transfers, fees and charges, how to choose a credit card and how to cancel one.

We also have an online credit card calculator that helps you work out the fastest way to pay down your debt and how much money you can save by paying it off sooner.

You can also download MoneySmart’s TrackMySPEND app which is really popular and you can track how much you’re spending on your credit card so you don’t go over your limit or end up in too much debt.

Lara Heilbuth: Thanks Michael. We’ll post links to ASIC’s report and how to find out more on the information about this podcast. And we’ll be back with another episode of ASIC’s podcast shortly.

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INTRO: Hello, and welcome to the official podcast of the Australian Securities and Investments Commission. In today's episode we'll be discussing ASIC’s review of self-managed super funds. My name is Tessa Loftus and with me this time around is Senior Executive Leader of Financial Advisers at ASIC, Jo Bird. Jo, thanks very much for your time.

Thanks Tessa.

Q: So, can you tell me what the review was about?

There were two aspects to our review. We did a research on the experience of consumers who set up an SMSF and we also did a review of the quality of advice provided to consumers who set up an SMSF

So, first of all talking about the consumer research, there were two parts to that. We did some in-depth qualitative research with SMSF members and we also did an online survey of SMSF members.

For the advice review component of our review on SMSFs we did file reviews of 250 randomly selected advice files that recommend consumers set up an SMSF.

So, essentially, we looked at people’s experiences when setting up an SMSF and the quality of advice they got before they decided to set up an SMSF.

Q: So let’s start by talking about the quality of advice then — what did you find in the file reviews?

In 10% of the customer files reviewed, we found that the customer was likely to be significantly worse off in retirement as a result of following the advice they received.

In a further 19% of the customer files we looked at, customers were at an increased risk of suffering financial detriment due to the lack of diversification of their SMSF.

And then finally, in 62% of the customer files, advisers were unable to demonstrate that they had met their best interests duty – the customer might not actually have been worse off, but the adviser hadn’t demonstrated that the client would be better off as a result of following the advice.

Q: So that’s a 91% advice failure rate — that’s pretty huge. What does that mean for consumers?

It’s a very worrying failure rate, especially considering the importance of superannuation.

The 31% of files where we considered there was likely to be significant financial detriment are obviously the most concerning, and we will be contacting the licensees who are responsible for that advice to make sure they review all their advice and remediate customers as necessary.

Q: Does that mean there will be regulatory action arising from these advice reviews?

ASIC has taken significant action in relation to SMSFs and the advice provided to SMSF members. In fact, there is a summary of the action we’ve taken in the report that we’ve released.

We’ve taken action in relation to SMSF one stop shops and we are continuing to focus on those because of the conflict of interest inherent in that business model. In fact, we’re working on a number of enforcement matters that involve one stop shops at the moment.

We’ve also highlighted risks of aggressive marketing around SMSFs and have taken and are taking enforcement action in response to that marketing.

We won’t be taking action in all cases of bad of advice uncovered in the work we did for this recent review.  And that’s because this review was actually a large research project and we looked at a random sample of advice.  So, that meant for most advisers we only saw one piece of advice file that they had provided.  We generally don’t take enforcement action in relation to one piece of poor advice.  But as I said, we will be following up with the licensees to make sure the consumers are remediated.

However, where in the project we saw multiple pieces of poor advice we have commenced enforcement action and are well advanced.

Q: So in this review you also spoke to people who have an SMSF or have just set up an SMSF — what were the standout findings or messages that you got from those interviews?

The interviews found that a lot of people aren’t fully aware of the risks involved in running an SMSF, of the costs involved, of the time commitment, or in fact of the scope of their legal obligations.

A few of the specific areas where we identified problems are, we found that:

• 38% found running an SMSF was more time consuming than they had expected
• we found that 32% found it to be more expensive to run their SMSF than they had expected
• 33% of the consumers we surveyed didn’t know that an SMSF is required to have an investment strategy, and
• 29% wrongly thought they were entitled to compensation for fraud or theft in relation to their SMSF.

We also found worrying trends around one stop shops and lack of diversification.

Q: One stop shops — you mentioned those before, what are they?

One stop shops is the term that we use to describe a business model where the person providing the advice to set up the SMSF has a relationship with a whole lot of other people who are involved in the SMSF process. So, for example, often they’ll have a relationship with a property developer or a real estate agent who will then sell property into the SMSF. Or they might have a relationship with a mortgage broker who will arrange a loan for the SMSF or they might have a relationship with an auditor or an accountant who will provide other services to the SMSF.

The report identified that there’s an increasing use of these sort of one stop shops by consumers who are setting up an SMSF. But we would encourage consumers to be very cautious when using them — we understand that consumers like using them, it’s convenient to go once place for all your services, but there’s an inherent conflict of interest in that business model, and that means consumers need to be careful when they take that option of using the one stop shop.

That conflict of interest puts people at increased risk of receiving poor advice that doesn’t take their personal circumstance into account or that’s not in their best interests.

Q: And you were concerned about a trend around diversification, what was that?

Ok, we saw an increasing use of SMSFs to access the property market, but often the property was the only asset in the SMSF. Many people didn’t seem to know the importance of diversification — having different kinds of investments in your SMSF in order to manage your risks.

It’s particularly important to diversify and manage risk in super, because super is actually crucial to people’s long-term financial well-being. And, I have to say, having interest in multiple properties is not diversification.

Q: In that case, what would your advice be for consumers who are considering setting up an SMSF?

Superannuation is very important and consumers have to exercise extreme care in choosing where to place their superannuation money and how to manage it. 

Making a mistake in relation to your super can have a very significant impact on your long-term financial well-being, and you may be unable to rectify the mistake in time.

I don’t want to give the wrong impression — SMSFs are a good product for some consumers, but they are not for everyone and they bring with them higher risks, greater responsibility and they demand much greater consumer engagement. So, it’s important that consumers think about all of those issues before they decide to set up an SMSF. And then they have to remember that SMSFs are not ‘set and forget’, they have to remain engaged with them once they’ve set them up.

Q: Obviously these are important issues for the people who have SMSFs, or are thinking about setting one up, but is that a substantial number of people? Is this really a broad issue?

It’s an increasingly large issue: 1.1 million Australians own 590,000 SMSFs worth $712 billion (that covers the assets and loans of those SMSFs. So they are now a big part of the superannuation sector.

The draft Productivity Commission report which was recently released in superannuation indicates that SMSFs with a balance less than $1m suffer higher costs and lower returns compared to APRA-regulated super funds and SMSFs worth over $1 million in assets.

67% of all SMSFs are worth less than $1 million – that is, below what the Productivity Commission thinks is the minimum investment to generally justify setting up an SMSF.

More alarming, 19% of SMSFs are worth less than $200,000.  In those situations it is really quite unlikely that the SMSF is in the members’ best interests.

Q: So, obviously in this review you’ve identified issues on the adviser side, but also in terms of consumer awareness, so what actions will we see from ASIC on this topic?

Ok, we think this is a really big issue and we’re putting a lot of resources into it, and we’re working closely with the ATO, who are the frontline regulator of SMSFs.

ASIC is taking regulatory action as appropriate, and generally putting pressure on the advice industry to improve standards, and providing as much education and guidance to the advice industry as we can to help lift those standards.

We’d also like consumers to be better informed in the decisions they make. AS I’ve said, super is one of the most important financial decisions you’ll ever make, so take the time to make sure you’re making the right decisions.

There’s a lot of information about SMSFs and how to figure out if they are right for you on ASIC’s MoneySmart, and we’re constantly reviewing that guidance to try to make sure we can reach as many consumers as possible, and provide them the right messages, and the messages that are helpful for them to make this important decision about their superannuation.

1. And we’ll post links to MoneySmart and the reports from this review in the information about this podcast. Thanks very much for your time Jo.

It’s a pleasure.

CLOSE: And we’ll be back with another episode of the ASIC podcast very shortly.

Transcript below:

*Opening music*

Susan Tilley: Nathan, welcome to the Anangu Lands Paper Tracker radio show. Thank you for joining us today.

Nathan Boyle: No worries. Thanks very much for inviting us on.

Susan Tilley: Nathan, could you give us an overview of the role and the work of the Indigenous Outreach Program of the Australian Securities and Investments Commission?

Nathan Boyle: Yeah sure. The Indigenous Outreach Program, or IOP for short, is a national team of lawyers and analysts who specialise in working with Aboriginal and Torres Strait Islander people, in communities right across the country to really help them to resolve financial services issues that might impact on them.

The IOP focuses on three main types of work. The first is on helping Indigenous people to get a better understanding of financial products on the market, by producing information that is designed specifically for Indigenous people to really help them get a proper understanding.

The second main type of work that we do is working with stakeholders. So, people that are in the organisations that Indigenous consumers need to interact with, like superannuation companies or banks, and helping them to understand how they change the way that they provide services to Indigenous consumers to make sure that they have the same ability to access financial services as all other Australians.

And, the third thing that our team does is where Indigenous people let us know about a problem that they’re having with a financial services provider, like a bank, or credit provider, and we can work with that community to take those issues to court and to ask a judge to decide whether or not the type of behaviour that is being experienced by the Indigenous consumers is fair. And that way we’re able to help Indigenous consumers to solve big problems that they might be having in the way that they’re treated by certain companies.

Susan Tilley: Now, ASIC and your team have just been to the APY Lands to talk with Anangu about their superannuation and their entitlements. But before we chat about your visit, which we’re really keen to hear about, it would be useful if you could explain what superannuation is and who’s eligible to pay and to receive superannuation.

Nathan Boyle: So, there are a lot of quite difficult rules around exactly how superannuation works. Sometimes it can seem really hard for people to understand exactly what superannuation is, but the easiest way to think about super is that super is like a special bank account that a person’s boss has to set up and put extra money in, on top of the wage that they earn each week. That money can only be accessed by the person usually once they’re too old to work, and they retire.

Susan Tilley: So Nathan we’re really keen to hear about your recent visit to the APY Lands. Would you like to tell us which communities you went to and what was the reason behind your visit?

Nathan Boyle: I’m really excited to be able to talk about last week’s trip actually because it was a really fantastic trip and we got to meet with a whole lot of Anangu. So, last week we took a group of executives from superannuation funds that had customers in the APY Lands, as well as Government departments and senior people from the Government departments that are involved in superannuation, out to the APY Lands. We visited 5 APY Lands communities last week.

We started in Indulkana, moved to Mimilli, Fregon and Pukatja, then finished the week on Friday in Amata. We really looked to a large part of the APY Lands with this outreach.

There were a few main aims of the trip. The first and definitely most important aim was that Anangu had told us that while they had superannuation, they were finding it very very hard to get that super even when they were entitled to get it. We wanted to help people get access to their super if they had met a reason why they could get their super because it’s their money.

The second reason was that we wanted to give people from the super funds and Government departments, an ability to see firsthand, to see from Anangu, how hard it was to access those services now so they can think ‘how can we make it better in the future’. We hope that those people will remember the difficulties that they saw when they were in the APY Lands this week when they’re thinking about making policy changes to make sure that it is easy to access superannuation for Indigenous people right around the country. So we think of it, if the superannuation funds actually get to see an Aboriginal person who is having difficulties accessing their own money, that it has a much bigger impact for that person than just hearing stories from someone like myself or from ASIC about what the issues are. Taking them out to communities really lets them see it and think about how they can fix the problems.

Susan Tilley: What did you find were some of the main challenges that they were facing in terms of superannuation?

Nathan Boyle: There were a whole range of barriers that people were facing. From things as simple as language, that many people in the APY Lands are first language speakers and communicate mainly in Pitjantjatjara. Access to interpreters to help them communicate with the funds, limited telephone coverage, as well as problems with identity documents. They might have had different names and different dates of birth on two different formal identity documents.

Susan Tilley: Now we know that there aren’t many jobs in remote communities and that lots of people are living on income support benefits and unemployment money. What are your thoughts on how the lack of work and the very small jobs market in remote communities, how that affects people’s ability to earn super, and what this might mean for people when they’re older and they can’t work, or have very little or no super?

Nathan Boyle: I think it is true that there are less jobs, less ability to find paid employment in some remote communities, and look it’s not really my area of expertise to talk about why there might or might not be jobs in remote communities, but there are a lot of issues like income support payments and these kinds of programs that really do intersect with the type of work that we do. We try and be very clear if we can, about the types of issues that we can help people with and those that we can’t, because we want to make sure that we make the biggest difference we can and, as an example of that, one of the things that I think Anangu taught the financial services industry representatives last week, was how intelligent they are and how much they want to know about their superannuation. I think that the super reps that came learnt the importance of really making sure that they give Anangu or other Indigenous consumers information in a way that they can understand so that they can make an informed decision, and that’s the kind of work that we like to do with the industry and with other Government departments.

It was really great to see all of those senior people from both finance industry and Government sitting down and learning from Anangu, taking the time to listen to Anangu about what their problems are in accessing super, finding out exactly what they do know and don’t know, and we’ve had a lot of comments already that people take the things they learnt from Anangu and think ‘how can we make sure that we’re communicating better so that both Anangu and the super industry can understand each other’s requirements and get the best out of superannuation.

Susan Tilley: We’d like to talk now about book-up, which is the practice of store owners taking customers debit cards and PIN numbers that are linked to a bank account into which their income is paid, and using that as security for purchases that they buy on credit. This arrangement can give the store owners free and easy access to customers’ accounts and to their money, and a case of book-up ‘bad practice’ was taken to the Federal Court. There have been more recent developments about this particular case, so it would be great if you could give us an update about the Mintabie book-up case.

Nathan Boyle: It is important to say that although the court did find that Mr Kobelt, the man who was running the store in Mintabie that we did take to court to ask the judge about whether or not his services were fair in terms of book-up, that the court found that he was operating a credit business without a licence, but that the way that he was operating the business wasn’t necessarily ‘bad practice’ under the law as it currently exists. So, ASIC thinks that potentially the behaviour might have been enough to amount to unconscionable conduct, the legal standard that a court needs to find in order to say that something is unfair, and at the moment we have sought commission to ask the High Court of Australia to make a decision about whether or not the way Mr Kobelt ran his book-up practice was fair or not. ASIC also thinks that even if the High Court thinks that Mr Kobelt’s book-up was fair as the law is now, that we should do something to make sure that Anangu have some rules that they can understand and Indigenous people using book-up around the country can understand, to make sure that they are always treated the same way and fairly if they’re using book-up. So, we’re talking to Indigenous people at the moment to find out ‘are there some rules that we could bring in to make this work better for them’.

Susan Tilley: Nathan, drawing to a close is there anything else that you would like to share with our listeners today?

Nathan Boyle: I think just quickly, it’s important for me to say a massive thank you to Anangu and to the communities in the APY Lands that really welcomed us there and invited us into their communities last week. The event was really well attended and on behalf of our partners that we ran the trip with, MoneyMob Talkabout, First Nations Foundation, The Australian Taxation Office, AUSTRAC, The Department of Human Services, Australian Super, HESTA, Super SA, QSuper, and Prime Super, we were all really appreciative and learnt a huge deal from your engagement in the program last week. The last thing I want to say to people is a lot of the things that we’ve spoken about today and in financial services generally are very confusing. You don’t have to know everything about financial services, we say to people it’s the same as being a little bit sick. If you’ve got a problem or you’re not quite sure about something in terms of your finances you don’t need to be your own doctor, you just need to know that there are places you can go to for help. In the APY Lands, MoneyMob financial counselling service is a really great place to go with your money questions.

Susan Tilley: Well Nathan thank you so much for talking with us today, it’s been great hearing about the work that ASIC’s been doing and we wish you all the best with your ongoing work. Thank you.

*Closing music*

You can read the full transcript of the interview below.

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Host: Hello and welcome to the official podcast of the Australian Securities and Investments Commission. With me today to discuss open banking is Van Le, director of innovation and strategy at Xinja. Van, welcome.

Van Le: Thanks very much for having us.

Host: So to start us off, can you tell me a little about what open banking is and how it’s going to change banking as we know it?

Van Le: I think one of the most exciting opportunities with open banking is that it will enable customers to safely and securely share data about their finances in their banking, which will enable service providers to provide much better choice and transparency so that people can make much better decisions, much more informed and transparent decisions, around what’s best for them.

Host: So this is sort of about competition and consumer choice, would you say?

Van: Absolutely, in a way that empowers consumers more than ever before because the options and choices available to them can now be provided in the context of genuine data and more complete data around what those options mean for someone’s financial future. 

Host: And you can tell me a little bit about how Xinja fits in to this idea and what your vision for banking in the future in Australia is?

Van: Absolutely. What we’re really interested in doing is creating a banking service that helps people make better choices with their money and key to that is being able to provide the information that customers need in real time – information that provides a complete picture of where someone’s financial situation is and information that’s put in context of what matters to people and what they really care about so that it takes away the stress and the overwhelm of making those financial decisions.

Host: So there’ll be a lot of, I would think, social and demographic components that fit in to this concept, what about issues with people who don’t have such good access to the Internet, what about people who are less financially savvy, what about elderly people, people with disabilities, people who live in rural areas – how are you planning to address the demographic impacts?

Van: A common theme in terms of what we’re looking to do at Xinja is bringing humanity back to banking, and part of that is making it possible for anyone, everyone, to access the kinds of services that you used to be able to get when you had a bank manager available down the street – someone who knew your character, someone who knew your finances and someone who could talk you through what’s best for you and what your options are. We think for many customers technology provides us the opportunity to bring even more humanity to those decisions and provide more transparency and fairness, and we also recognize that there are a number of customers who don’t have similar levels of access to technology and digital channels. That’s why for us when we say that we believe people should be able to do all their banking from their mobile phone, it’s not limited to apps, it also means you can still call someone and interact with another human being to be taken through what those options and opportunities are. 

Host: Obviously with the kind of setup that you’re talking about, privacy and information security will be a really strong focus for you. Can you tell me a little bit about how you’re going to approach that?

Van: Yes, absolutely. It begins with bringing the best that technology has to offer in terms of protecting the data that we do have. Part of that is about managing that balance between giving consumers access and control over their data and providing the freedom to share that without exposing customers to unnecessary risk. So for example, we don’t expect that customers should have to hand over their online and mobile banking details in order to share data about their transactions. We’ve learnt a lot from neo-banks overseas, especially in Europe and the UK in terms of the challenges and also the opportunities of the PSD2 standards over there and what that might bring to open banking and the levels of security that would be appropriate for the kinds of services that we’re looking to offer. Above and beyond that I think it would be quite arrogant for any of us in the industry to say that there will never be a data or security or privacy breach - if anything, that we should be preparing for these things to happen because cyber security and cyber crimes are getting more and more advanced. But what’s important is that we’re aware of those risks and that we have policies and processes and technology in place to minimize the impact of those instances so that customers’ money is protected even if they do occur. 

Host: What about trust? I would think that trust would be a very significant component of the customer relationship, really for any financial institution but especially for someone that’s new?

Van: Absolutely. You see numerous of stories in the media recently on the erosion of trust and the need for the industry to rebuild that trust again. In very early customer workshops and interviews one of the questions we asked them is ‘who do they trust with their money?’ And what was interesting was some of them said ‘Who I don’t trust are fund managers, superannuation funds, my bank, my husband, my 18 year-old self…’ and when we asked them who they do trust they said myself, my wife, my Mum, a term deposit. So what’s interesting there is not so much the lack of desire for trust but the demand for a different level of conduct and behaviour than what we’re seeing in the industry today. 

Host: And what about risk? What would you say are the biggest risks for consumers in this space? And I guess there’s probably also different risks from your angle, but we’ll start with consumer risks.

Van: Separate from the technology and cyber security risks that ideally financial institutions should be taking care of, it’s also important that consumers look at risks in a similar way to how they manage their Facebook accounts. So anywhere where you’re given the opportunity to share your data, you want to make sure that you know what you’re consenting to, who’s going to get access to that data, how they would use that and how to change or withdraw that consent in the event that you change your mind. So while this opens up a whole new world of opportunity, we’ve seen what’s happened with some people with their Facebook accounts and would hate to see similar circumstances arise in the context of open banking, especially now that we know more and know what’s available to us to be able to educate consumers on how to make the most of this opportunity without putting themselves at unnecessary risk. 

Host: And so what about the risks from your perspective? What about the business risk? What do you think are the key challenges that you’re looking at there?

Van: When we started on this journey to create a neo-bank from scratch, one of the visions we had in mind was a world where there would be open banking and more fluid and accessible data sharing so that customers could make better choices. So in some ways we’ve been designing our services to prepare for this world. And the challenge that means for us I think actually is: how do we make it easier for new technology to speak to perhaps legacy systems and still facilitate this kind of data transfer no matter what kind of technology that you’re working with. 

Host: So do you think the big banks are ready for open banking?

Van: I wish I was a big bank so that I could tell you, I do think they have strongly recognized the desire from customers to be able to share data and quite rightly, they’re looking at ways to do that without exposing customers to unnecessary risk. 

Host: Thanks very much for your time today, Van.

Van: Thanks very much for having us.

Tessa: And we’ll be back with another episode of the ASIC podcast very shortly.

Scott headed up the Australian government's review into open banking and was asked to recommend the most appropriate model for open banking in Australia. 

Visit ASIC's MoneySmart website for more information on retirement income planning. 　

Click through for transcript:

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Transcript:

Peter: Hello and welcome to the official podcast of the Australian Securities and Investments Commission. My name is Peter Kell and I'm joined this time around by Ian Yates, who is the Chief Executive of the Council of the Ageing Australia and one of the terrific people who we rely on to provide ASIC with insights into the whole area of retirement. Today, we've asked Ian to talk about preparing financially for retirement. Ian, thanks very much for joining us.

Ian: It's a pleasure and thank you for having me.

Peter: As Chief Executive of COTA, Council of the Ageing, can you tell us Ian what are the main financial issues concerning your members and how does the issue of trust play out in the sector?

Ian: Peter, the financial issues facing our members are quite diverse because older Australians are very diverse and some people come off of a period of essentially either retirement or semi-retirement onto an age pension and their primary issues are living on that budget. Others come for the first time in their lives to a retirement perhaps a bit unexpectedly and receive access to superannuation benefits which is a lump sum even though it's still not a mature system, that's larger than they've had ever before, probably even larger than what they've put as a deposit on their house. And then there's what do they do with it? And frequently, that question leads people, if I can say, into making often inappropriate choices. For example, following the global financial crisis, we had a lot of people who without advice capitalised their losses, took their money out and put it in term deposits, and who now regularly tell us that they can't live off the income from their term deposits. So I think it's, actually, one of the biggest issues, is coming into retirement without preparation. And then the third would be people who are subject to, sometimes actual scams, but often just inappropriate products and services, some of which are risky, others of which may be quite genuine products but weren't appropriate to them.

Peter: That's a good introduction into the next question, Ian, that I had for you and it's around getting good advice. Because as you've said, there's certainly a degree of complexity out there in the financial situation that confronts older Australians, a complexity in many of the products they're facing, so how can older Australians be confident they are getting good advice?

Ian: At one level, Peter, the answer to that is that it's difficult because we are just in the process now of developing a better financial advice system and until we have people who the public generally understands what their training and accreditation is, and means, and indeed until we have that accreditation very properly reflecting specialities. For example, not every financial advisor understands how to advise someone of the complexities of a retirement villages contract, and yet that can have significant financial complications. A relatively simple on paper choice of someone paying for an elderly relative's aged care entry either through a refundable accommodation  payment or a daily payment actually can have quite significant financial implications for a family with a whole lot of interconnected financial arrangements. For some people it's straightforward, and for others it's not. So I look forward to a situation where we have a much stronger regulated and trained advisory force, because I think it's really critical. Very few people - we can tell them to do it - but very few people plan many years ahead. So you actually need that advice available at the right time when people are motivated to access it. I think superannuation funds have a bigger role to play in promoting advice and providing that advice. And indeed in getting people to think about what it is that they want to do in retirement  because money is there to facilitate what you want to do, the purpose of your retirement is not to preserve your finances, it's actually to live well off of them but have enough for the contingencies of aged care or health issues. So at the moment I still say that people ought to ask in their circles if they've had successful advice, they ought to seek advice from the appropriate registry authorities and they oughta talk to their super funds about who they recommend for advice.

Peter: You've made it clear in talking about advice that there are often quite a number of people involved in these sorts of decisions, not just the older Australian or the couple, and look, I think we all understand it can be a very good thing to have support from family and friends when facing these sorts of complex financial decisions, from your experience, though, what should people keep in mind to ensure that they are offering positive and appropriate support in this area?

Ian: I think it's very important that both the family members and the older people themselves take advice in areas that they don't understand, that they haven't had previous experience of. An example of that would be pooling funds for shared accommodation – what are the best things to do? It's that old adage that you actually need things written down not for when it's all going well but for when it might go wrong. So getting formal arrangements in place with family members is important, because if all goes well, the formal arrangements will be irrelevant, but if something should go wrong, then the formal arrangements will be really important.

But secondly, it's important to involve and maybe even involve with an independent person - t might be someone formally who is involved with mediation , it might be a local minister, if you're of a religious persuasion, it might be someone independent who you trust, to enable you as a family to talk through issues like forward planning for housing and accommodation, like making power of attorney and guardianship arrangements, like making arrangement for equity release from your home, all of which impact on everybody, much of which causes angst just because there was not awareness in the first place.

Peter: So, we've covered a lot of territory there – if you were to sum up, what would you say are three key things that people should do to prepare themselves for retirement?

Ian: The first thing I would say is don't assume that the first thing that pops into your head is the right answer – it may be what the whole mythology in society is saying – because this is new, to have long periods of living in retirement. The second is – don't get rushed. It's possible but it's highly unlikely that all your circumstances will change in the next two months. So it is possible to seek advice, talk with friends, if others you know have gone before you in this journey, talk to them – because they'll have had some traps that they've fallen into that you might avoid. The third really is to take advice about things you don't know about and make careful decisions that don't commit you irrevocably unless that's - for example taking a deferred annuity would commit you – but you would think that through. A lot of those decisions can be taken in steps. The – you asked for three, but the fourth would be actually to do what many people don't do which is to try and think about these things earlier than you feel pressured to like your housing arrangements or major financial investments.

Peter: Well we asked for three, we got one extra for free – thanks very much Ian Yates, Chief Executive of the Council of the Ageing Australia.

Ian: Thanks Peter.

• Liam Ridgeway, co-founder of Ngakkan Nyaagu (NGNY), an Indigenous digital enterprise
• Jasmin Herro, founder of Outback Global, a leading Indigenous supplier of workwear

The Close the Gap campaign aims to create equality in health between Indigenous and non-Indigenous Australians. This campaign also measures progress in economic development and employment, and these aspects were the focus of ASIC's event.

Liam and Jasmin were also kind enough to speak on our podcast after the event. In the episode, you will hear from Liam and Jasmin about how and why they started their businesses and what impact they seek to have as Indigenous entrepreneurs.

Transcript

Host: Hello and welcome to the official podcast of the Australian Securities and Investments Commission. In today’s episode we will be talking to two outstanding Indigenous entrepreneurs who we’ve just heard from at our Close the Gap event here in Sydney today. My name is Justine Butler, and with me are Jasmin Herro, CEO of Outback Global, and Liam Ridgeway, founder of NGNY, an Indigenous digital enterprise. Thanks very much for your time today, let’s start with Liam. Liam, you started your IT career with Microsoft and were extremely successful there, what did it take to leave such a big enterprise and start out on your own?

Liam Ridgeway: It was quite interesting. It took a lot of, I guess a lot of guts. In fact, there was lots of late nights, lots of thinking about whether I should pursue this or not. It sort of came off the back of an idea from a conversation that I had with a colleague of mine at Microsoft to I guess pursue a business idea and leave Microsoft, and, I think it literally took me maybe nine months to actually build up the courage to go and actually explore the opportunity to start my own business. And it was very stressful, I had to also convince my partner at the time, who is now my wife, that this was the journey that I wanted to take and that my potential was going to be far higher going on this journey and starting my own business as opposed to working just in a corporate role, and I also wanted to make more of an impact, and so that was the thing that actually helped me convince myself that by having my own business I could have more of an impact in the Indigenous community, but also across Australia and potentially across the globe as well.

Host: The question, or possibility, for impact came up in the talk today and Jasmin I believe you’re very much motivated by making an impact around Indigenous culture in both Indigenous and non-Indigenous communities, perhaps you’d like to tell us a bit more about that.

Jasmin Herro: Thanks Justine. Yes, I think there’s an unwritten law that Indigenous businesses must give back to community, and must show a social impact, and if not, now. And I think one of the reasons why I took time out to think about the social impact that I wanted to leave, which was not just about writing a cheque for money, but leaving a legacy for others that would outlive me and even my project. And one of the things as a parent, my children always struggled with was ‘how do I explain who I am, and where I’m from?’. And I think the other side of that was how do the teachers try to include Indigenous culture into the classroom? So as a parent myself, I thought, I was getting a little tired of teachers asking me, ‘so, um, what do you think we should do for NAIDOC Week this year?’. And I think that started me thinking about ‘how could I make it easy for my children to explain about their culture, and how could I make it easy for the teachers and the other students to understand how interesting it was?’. And so that’s why I embarked upon the Teter Mek project and indeed writing the books, and creating the workbooks and teachers’ resources to go with it.

Host: That kind of leads me back to this kind of broad question that we have about, ‘how does being an Indigenous person influence your business?’ Liam you spoke about that today, perhaps you could elaborate.

Liam Ridgeway: So, being an Indigenous person and being in business, for me, and I can also talk for John my business partner as well, it is a core part of what we do, why we exist, and how we do what we do. So, being Indigenous and having a business, as Jasmin talked about, we want to be able to make an impact; we call it a social impact; but for us it’s about an impact of sustainability, of enhancing and improving the lives of our community and our people. You know we talk about this whole idea around the ‘gap’, and we want to participate and look at the way that technology plays a role in closing the gap, but I guess the other side to it as well is that there’s not only a gap in relation to Indigenous Australia and connecting with western education systems, but it’s also non-Indigenous Australia and how it is connecting with Indigenous perspectives and culture as well, and we want to be a part of that journey too and look at the way that technology plays a role in capturing our culture and being able to share that with the rest of Australia, and with the rest of the world. So being Indigenous, and owning our own business, absolutely for us go hand-in-hand, and drives us every day, and this is why we’ve coined the term ‘Indigenous digital economy’, because we want to achieve success in our business, but it’s the bigger picture; the success for our people the success for our community, and the growth of our community.

Host: So, Jasmin, you’ve managed to start a workwear uniform supply company that now I believe has a partnership in the United States amongst other things, so it’s a global enterprise, what are some of the key challenges you encountered as you went on that journey?

Jasmin Herro: Some of the key challenges would have been finance and capital; having a product-related business is never easy, and funding yourself, boot-strapping only goes so far. So, I think building relationships with your financiers are also very important, but also having a clear discussion, an open, two-way discussion with our customers also helps make our delivery, and our service, easier. I think it’s all about building relationships. I think as far as Aboriginal people and Torres Strait Islander people are concerned, when you hear us introduce ourselves we normally talk about where our mob is from or who we belong to, and what I’ve found is that once you actually start to build these relationships internally with some of the big organisations that we deal with, that’s where the respect and the understanding of what we’re trying to achieve comes across.

Host: So, I think our final questions for both of you is ‘what’s the one piece of advice you would give a young Indigenous person contemplating getting into business?’ I might throw to you Jasmin for your tip.

Jasmin Herro: Yeah, I think I’ll stick with what I said earlier today, and one is that I can’t give one piece of advice because I’m a mother, and two, be really clear about what you’re doing and what you’re trying to achieve, and if you can articulate that into a business plan or idea, that’s when you can actually start to think about moving it into a real live business. And also, drink lots of good coffee.

Host: Thank you, we all enjoyed that tip. Liam?

Liam Ridgeway: Absolutely. So, I’d say believe in what it is that you’re doing, so absolutely don’t let anyone tell you that you’re crazy. If you believe in something, absolutely pursue it and chase it. And one thing that I would also encourage as well, is this idea around being lean. So, there’s this concept called ‘lean methodology’, so be lean. So, don’t necessarily go in and spend lots of money on this particular idea that you have. Find a structured way to get your idea out there, talk to people, get feedback, make sure that the idea that you have, or the business that you want to pursue, that people are actually interested in what it is that you want to do, and why they’re interested in it. So, if they for example, they get paid – and are they actually going to spend their money with you. Find out how, really dig down and find out would they actually spend their money with you, because people in your network are going to go ‘I love that idea, it’s great’, and that’s awesome, but it’s about ‘are they going to spend that money with you’. And so that is through using this lean methodology of how to be able to understand what people’s perspective are, and if the idea that you have is going to work.

Host: Thank you so much to both of you for sharing your thoughts today, and I certainly feel like we’ve got more of an insight into closing the gap with economic empowerment so thank you both.

Jasmin Herro: Thank you.

Liam Ridgeway: Thank you.

Host: We’ll be back shortly with another episode of the ASIC Podcast.

Click through for the transcript:

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Episode 32 transcript: Add-on insurance

16 March 2018

ASIC podcast – Episode 32 transcript

Host: Hello and welcome to the official podcast of the Australian Securities and Investments Commission. In today's episode we'll be discussing add-on insurance and the work that ASIC is doing in this area. My name is Tessa Loftus and with me this time around is Senior Executive Leader of Deposit Takers, Credit and Insurance at ASIC, Michael Saadat. Michael, thanks very much for your time.

Michael Saadat: Thanks very much Tessa.

Host: So before we talk about ASIC's work in this area, could you give me a little bit of an explanation of what add-on insurance is, and what it's for?

Michael Saadat: Add-on insurance is a type of insurance that's sold when you buy another product and in this case we've been focusing on add-on insurance that's sold when you buy a car. So most consumers would be familiar with Comprehensive Car Insurance that you usually buy when you've got a car, that protects you if you have an accident, but there's a whole range of other add-on insurance products that are also sold when you buy a car, especially when you buy a car on finance. And these are insurance products that are designed to provide coverage if something goes wrong and you can't pay back your loan, so products like gap insurance or consumer credit insurance but there's also other products including tyre and rim insurance. So ASIC's had a focus on these products because we don't think consumers understand how these products work and there have been quite a few poor consumer outcomes that we have identified in our work associated with these products.

Host: What are some of the problems and the poor outcomes you've identified with add-on insurance?

Michael Saadat: We've identified a range of problems with the sale of these products through car dealerships. Firstly, we've identified that these products can be very expensive for consumers, often in the thousands of dollars, and they're expensive partly because insurers have been paying very high commissions to car dealers to sell these products. We've seen examples of commissions of up to 80% for these products, which means for example, if you are paying $1000 dollars for gap insurance and the commission on that product is 80%, then the insurer is paying 80% of that $1000 to the car dealer as a commission, so $800. Which as you might guess doesn't actually leave a lot of money on the table for claims and what we found was actually that consumers were not getting much money back in claims with these products and why we've been saying for some time that these products are really very poor value for money for consumers.

One of the key statistics that we identified through the extensive data we collected in this market is that over a 4 year period consumers paid over 1.6 billion dollars in premiums to insurance companies for these add-on insurance products. And of that 1.6 billion, insurers paid car dealers around 600 million dollars in commissions, but consumers only received around 150 million dollars back in claims. So car dealers have been earning 4 times more in commissions than consumers have been receiving in claims and this is why we've been saying that this is a market that has been failing consumers.

Host: So in the last few months, there've been several quite significant add-on insurance remediation programs initiated by ASIC, can you tell me a little bit about those?

Michael Saadat: Yeah we've been doing a lot of work to address what we consider to be unfair outcomes that have occurred with these products over a number of years. And we've announced so far four very large remediation programs or refund programs for consumers who've been affected by these unfair outcomes. So over $120 million dollars will be refunded by these insurance companies to over 250,000 consumers and this is for situations where consumers were sold insurance they couldn't claim on, they were sold insurance that was of little or no value to them, or insurance where the amount that the consumer was paying in premiums was actually higher than what they could have gotten back if they made a claim. And we think all of these outcomes were unfair which is why we've negotiated with the insurers to have these remediation programs put in place. And insurers are now contacting those affected consumers, in some cases sending cheques automatically to those consumers, but in other cases insurers are contacting consumers to get some more information and consumers will receive refunds when they provide that additional information to the insurance company.

Host: So that's a lot of money to a lot of people and given the number and scale of these remediation programs, does ASIC have any concerns about the inherent design flaws and the sale of these products?

Michael Saadat: Yeah we certainly do and we've been focused a lot on how these products are designed as well as the way they're sold. So I mentioned that commissions have previously been very high, we've managed to see commissions drop quite significantly and most insurers have reduced commissions to around 20%, and we think this is a very positive step. The cost of these policies as a result of those changes has also come down quite a lot, so these products are now much cheaper for consumers. But the other concern that we've had is around the sales environment in which these products are sold. We've done some research that shows consumers often don't make a good decision when sold these products. They're focused on the car and all of the choices that need to be made when buying a car and they're certainly not focused on the finance or the insurance that's also sold with that car. So what we think is necessary, is to separate the sale of the car from the sale of the insurance. And we've been investigating changing the rules so that car dealers can't sell both the car and the insurance at the same time. And what this will do is make sure that consumers are able to think about whether they really do need add-on insurance products like gap insurance or consumer credit insurance and have time to think about that rather than have to make a quick decision in what might be a pressured environment in a car dealership.

Host: So there's the previous remediations that you've mentioned before, but should we expect to see more remediation programs and further regulatory action in this area?

Michael Saadat: Yes so we are talking to other insurers as well that have been selling products through car dealerships. So we will be looking to make additional announcements about that work. But also as I mentioned we've been investigating changing the rules to separate the sale of the insurance from the car and we're about to start a second round of consultation with stakeholders on a model which will see that implemented. We call it a deferred sales model and ASIC will be making some announcements about that pretty soon.

Host: In addition to the work on add-on insurance, what is ASIC doing to assist people who are buying a car or thinking about buying a car?

Michael Saadat: There's a lot of really useful information on our MoneySmart website. That's moneysmart.gov.au.

So I would recommend any consumer who's thinking about buying a car to head to that website and review the information that we've got there.

But in particular I would really recommend the MoneySmart cars app for any consumer thinking about buying a car. This app lets you know what the true cost of owning a car is. And in a very simple way, illustrates what the additional costs of financing a car and buying these add-on insurance products is when you add it all up and you think about the interest over the life of the loan.

Definitely worth checking out, you can download that from the Apple store or from the Google play store.

Host: Great, thanks very much for your time Michael.

Michael Saadat: No worries at all, thank you.

Host: And we'll be back with another episode of the ASIC podcast very shortly.

Read the Report

Both the media release and the report can be found here.

ASIC is currently inviting submissions on Consultation Papers 288 and 289. Any submissions, queries or comments can be sent to csf@asic.gov.au. (Submissions are due by 3 August 2017.)

For more about ASIC's market integrity work, you can subscribe to our Market Integrity Update.

The full report is available here.

You can find out more information about the app at ASIC's MoneySmart website.

Download the app via the Apple Store

Download the app via Google Play

The roundtable facilitated discussion on the current RegTech landscape and its development and future potential to promote good risk management and compliance outcomes, and drivers and barriers to RegTech in Australia, including what the industry and ASIC can do to help promote the development and application of RegTech.

Mark Adams, ASIC Innovation Hub co-ordinator, joins the podcast to talk about the roundtable, why ASIC held it, what topics came up and where we go from here.

ASIC Commissioner Cathie Armour joins the podcast to discuss the details of the case, as well as its wider significance for Australia's financial markets.

You can read ASIC's media release on the matter here

More information on the topic is available here.

The awards are part of the Australian Charities' Fund One Million Donors campaign, and recognise employers and their staff who show leadership in supporting charities and community groups.

The report can be viewed here.

The media release can be viewed here.

More information on add-on insurance can be found at ASIC's MoneySmart website.

The report is available here, and the relevant media release is available here.

Read our media release

Read the report

You can find out more about ASIC's Innovation Hub by going to the webpage.

Read ASIC's media release on Consumer Fraud Week 2016 and visit ASIC's MoneySmart website for more tips on avoiding investment scams.

Read the transcript

Media releases for matters mentioned during the podcast:

- Mr Xiao/Hanlong mining

- Kamay and Hill

Speakers include ASIC's Joanna Bird and Louise Macaulay, Senior Executive Leaders of the Financial Advisers team as well as a panel discussion from:

Greg Miller, Executive General Manager, Wealth Advice, NAB

Chris Brycki, Founder and Chief Executive Officer, Stockspot

Kate Jackson-Maynes, Partner, King & Wood Mallesons

Dr June Smith, Lead Ombudsman, Investment and Advice, Financial Ombudsman Service Australia

He covers:

- the key statistics from the report

- major outcomes that support ASIC's priorities

- ASIC's ongoing areas of focus

- and much more.

You can download the report here and read the media release here.

More information can be found at ASIC's Information Sheet 179.