Prescriptive regulation leads to loss of personal responsibility

Highly prescriptive regulation has led to an environment in which financial planners have abrogated their personal responsibility to the client in favour of a “ticking compliance boxes” approach, according to a submission to the Rippoll Inquiry by industry commentator Paul Resnik.

The regulators in the industry must infuse some level of personal integrity into providing financial advice. There needs to be a higher moral and professional obligation in play besides regulation, Resnik said.

Resnik drew a parallel with the regulation governing financial services firms in the United Kingdom, in which firms are expected to demonstrate that they are treating their customers fairly. The six outcomes dealing with the fair treatment of consumers, including making fair treatment central to the corporate culture, and keeping consumers informed during the advice process, has been a key driver in improving quality of advice, he said.

Resnik also accused the current regulation of asking too much of financial planners by forcing them to assume sole responsibility for advice after taking into account all the relevant circumstances of the client.

Such regulation discouraged the investor from taking meaningful responsibility for the investment decision, and contributed to a loss of confidence in planners and even legal action in some cases, he said.