If one thing has served to distinguish 2017, it has been the increasing costs of regulation imposed on the financial services industry, writes Mike Taylor.
As 2017 draws to a close, it is worth reflecting upon what has been an eventful year for the financial planning industry – a year which has seen the imposition of many policy changes – but one which begs the question of whether financial planning clients are being left any better off.
What those running financial planning firms already know is that the cost of doing business is going to rise as they move into 2018 and they also know that at least a part of those increased costs is going to need to be passed through to the consumers of their services.
The first and most obvious increase in costs comes as a result of the industry funding model for the financial services regulators; this will then be followed by the expected increased costs associated with the establishment of the Australian Financial Complaints Authority (AFCA), and then whatever financial demands will be associated with the Financial Adviser Standards and Ethics Authority (FASEA).
It is therefore little wonder that many dealer group heads have suggested that the cost of doing business has never been higher, and that a number of the major banks have been moved to cite the manner in which increasing regulatory costs have impacted their balance sheets over the past 12 months.
For its part, the Financial Planning Association (FPA) has been very clear in its views about the impact of regulation on the financial planning industry.
It recently used a submission to the Treasury to outline just how much regulation was being faced by firms seeking to operate in the financial services industry.
“Based on the Government’s current regulatory architecture, financial service providers are regulated by seven regulators,” it said.
It then nominated those regulators as being the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA), the Tax Practitioners Board (TPB), AUSTRAC, the Credit & Investments Ombudsman (CIO), the Australian Taxation Office (ATO) and the FASEA.
The FPA noted that, depending on the services being provided, “registration and compliance would be required with all seven of these regulators – including ASIC (all be it in a slightly modified manner)”.
“We would note that the Government’s moves to user pay funding models for these regulators (plus AFCA) is leading to further increasing costs,” it said.
In other words, financial services firms are facing increasing costs in meeting their regulatory obligations and there are real questions to be asked about whether either they or the end consumers are going to be able to get visible value for money for their efforts.
As is stated elsewhere in this edition of Money Management it seems many of the regulatory changes imposed by the Government in 2017 were aimed at undermining calls for a Royal Commission into the banking and financial services industry – a Royal Commission which will become inevitable with a change of Government.
Just how the industry copes with the increased regulatory costs will become obvious as it moves into 2018, but what is certain is that those writing the cheques will be looking for increased value for money.