Is financial advice being legislated and regulated towards market failure?

9 June 2020

In an article being circulated amongst financial planners, a Sydney lawyer has argued that lawyers are regulated nowhere near as heavily as financial planners, that financial planners have been legislated to within an inch of their lives and that, on occasion, the Australian Securities and Investments Commission (ASIC) has exceeded its legislative brief.

The article, written by the managing director of Hamilton Blackstone Lawyers, Cristean Yazbeck argues that a range of these factors and others has brought the financial planning industry to the brink of market failure.

The article traverses a range of issues and even suggests that “ASIC no longer wishes to work licensees and planners” and “has a vendetta against them” suggesting that ultimately advice will be priced out of the reach of ordinary Australians and lead inevitably to market failure.

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"Market failure, as we know (at least in an economics sense), essentially arises where there is an inefficient distribution of goods and services in a free market, such that it leads to irrational behaviours and outcomes. Furthermore, the individual incentives for rational behaviour do not lead to rational outcomes for the group,” Yazbeck’s article said. “Put another way, individuals make what appear to be correct decisions for themselves, but those prove to be the wrong decisions for the market.”

“Sounds disturbingly like the financial services industry, does it not? Look at ASIC’s behaviour. Look at the legislation. Look at the way service providers act in their self-interests (product providers, compliance consultants and lawyers, 8-figure ‘remediation’ programs run by the Big 4 accounting firms, to name a few – where everyone is both out for themselves and acts to protect themselves).

“In an economics sense, this leads to a net social welfare loss (in this case, consumers suffer greatly, because of the increased costs of, and limited access to, financial advice and services). Stakeholders’ pursuits of self-interest lead to inefficient and adverse outcomes for consumers.

“Ironically, in a traditional economics sense, it is the role of governments to intervene to correct this market ‘failure’: however, ASIC and the legislature appear to be the main protagonists. In any event, the end-consumer loses.

“Everyday Australians are being priced out of advice and services, and therefore improved retirement outcomes. The social welfare costs (especially the increased reliance on the public purse as a consequence) are immeasurable.

“ASIC’s ‘shoot first, ask questions later’ approach has crippled the industry. One mistake, and you’re out! Recent experiences show that they’ll keep looking until they find something. They’re no longer about the consumer. They’re no longer about educating and working with planners. Rather, we’re at the mercy of the equivalent of a top-tier litigation law firm, filled with gun-toting mercenaries governed by a mandate to seek and destroy. And they’re comfortable enough to act unlawfully and outside powers, knowing licensees and planners are too exhausted and resource-drained to take up the fight.”




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How right you are sir. The regulators have no care or concern apart from doing the bidding for the large institutions such as banks life office and the industry fund sector. At every opportunity ASIC have sought to malign the advice sector by excusing the very people largely responsible for the most abhorent behaviour. The CEO's of these organisations. They would ply ministers and regulators with gifts and bribes and when all forms of essentially cartel behaviour was exposed, sought ASIC to kick the adviser. Political party's have hurt the advice secotr and now with FASEA and AFCA, seek to bury the secotr once and for all. By the way if you think you will survive this, think again. Your costs will rise your revenue will fall as fewer people can afford your advice while consumers will be treated like sheep and with utter contempt will have ROBO advice and call centres to deal with their issues. Face it. Bothe sides of the politcal devide are to blame. The advice industry is strangled with regulation beyond comprehension. Meanwhile my sector as a lawyer gets away with charging whatever I want to my client while Trustee companies do likewise. Best interest you say. Not for the legal world. Just for you. Consumers are in greater need for advice and with our economy in a parlous state, we have conflicted fools as regulators and incompetents in Canberra who can only be classed as economic vandals presiding over the lives or ordinary Australians. A damn shame as we are cursed by th these fools.in ASIC, APRA, ATO, ISN, FPA, AFA Labor Liberal

I am seriously giving it thought to become a lawyer. do as you please, charge as you like, no unworkable ethical code to strangle you. PI that is robust and cheaply available.

no regulator to defame you (they wouldn't dare) daily. law society constantly spruiking how great lawyers are.

pretty easy course to do, and only 10 hours of CPD per annum in NSW

I think advisers thinking of exiting should think about law as their second career. think about it, you can then become ambulance chasers and sue all the remaining advisers under the fasea code.

sounds like a pretty good deal to me.

The thing I love about the advice sector is how things are always preached internally. I appreciate Mr Yazbeck taking the time to write the article, but seemingly only circulating it amongst financial planners is simply telling us what we already know and achieves nothing. Perhaps Mr Yazbeck may consider writing to Government or the mainstream media, as its a closed audience here!

he is just trying to get more business for his firm.

his clients are AFSL's. he is saying you don't have to agree to any demands from ASIC, come in and see me first and i will help you, for a fee of course

no one sympathizes with financial planners. too risky.

The legal fraternity does have federal and state professional bodies over sighting the professional standards and interests of barristers and solicitors. These bodies supervised the qualifications and admission of new entrants into law. These bodies do have a professional code that they do exercise to suspend or retire people who breach the codes or abuse client relationships. In others words a professional group of people abiding to its rules.

This is not what the financial planning industry has and that's why bodies such as ASIC have been given the powers that it has. Mr Yazbeck seem to not see the wood for the trees.

Hedware you write:

"These bodies supervised the qualifications and admission of new entrants into law. These bodies do have a professional code that they do exercise to suspend or retire people who breach the codes or abuse client relationships. In others words a professional group of people abiding to its rules."

How is this actually ascertained and demonstrated? Does an investigation only occur as a result of a complaint? Are there non-compliant lawyers out there who continually slide under the radar? What confidence should the public have in the regulatory body?

Both law and advice have a fiduciary duty for practitioners, yet there is a stark difference in the test of the fiduciary obligation upon the practitioner.

With law the focus of a fiduciary test is tilted toward client outcome.

With advice the focus of a fiduciary test is tilted toward the demonstration of process during the formulation of advice.

If you walked into a law firm and picked up a client file, would it be demonstrable within the file that the lawyer has acted in the clients best interest? What would be in this file to suggest to a reasonable person that the lawyer had undertaken a necessary investigation before providing appropriate legal advice?

If you believe that Mr Yazbeck 'seems not to see the wood for the trees,' requires a belief that the current way in which the fiduciary obligation is tested and then enforced by ASIC provides the best outcome for our society.

Consideration to the externalities which are occurring (and their consequence) as a result of the current status-quo appear fair and reasonable to me.

Well said and good logic throughout. Betting Mr R. Hedware doesn't reply because it's hard to refute, or else replies by attacking another party/sector or ideological aspect without addressing a single point you've made. That has been his normal modus operandi for the last 3 - 5 years.

but Hedware speaks the truth.....on this occassion. Hedware has clearly stated that common to those industries that have little Government intervention is self regulation, that is a Profession. I agree with the respondents claim that for financial planner quality advice is measured by the advice process rather than the outcome and frankly Financial Planners have only themselves to blame. We lost our chance at self regulation when the FPA appeared at the Royal Commission and the financial planning industry was ruled as being incapable of self regulation under the current structure.

I'm off to buy a lottery ticket!

he is not wrong. the biggest detriment to financial advice in Australia in the order of their detrimental contribution, big banks, afsl holders and their executives, ASIC, self-interested financial planners who only think about their own meal ticket and want to cut everyone else off

ASIC has demonized financial planners and has aided in their destruction. you would not see this sort of behaviour from any other regulator in an advanced economy.

what other professional group is subject to even some of what we have to endure.

it is utterly disgusting, a total and complete failure beginning in 2013.

Yazbeck is spot on, except for one comment -
'They’re no longer about educating and working with planners'
To my knowledge, ASIC has never been about educating and working with planners. Regulatory guidance? Always comes way too late; The sample SOA? A pathetic joke; Attendance at industry events? They do nothing more than strut in and insult us.

We are looking for a replacement lobbyist for the FPA (who have actually helped facilitate this market failure). Look's like we have found him.

Most of my advice writing time is taken up giving reasons in writing why what I recommend is appropriate. I'm alone if a Dr or lawyer had to document and justify every prescription or legal course of action taken. It ridiculous, time consuming and expensive to the exclusion of smaller clients.

doctors and lawyers don't have to justify their opinions. they are qualified professionals that CAN give their opinion on the subject matter at hand as they ARE the experts.

we are not professionals we have to justify our recommendations, we are not experts.

doctors and lawyers don't have masters, each one is individually qualified to their specialty occupation by their respective qualifying programs then left to operate on their own

financial planners have overlords, like AFSL holders who run Advice Businesses

we have to please our masters - we have many masters

Haha, hope you are joking when you say docs and lawyers are experts?! I have both social and professional contact with a wide number of both, and the truly good ones are the first to admit they're not 'experts', especially if they act in normal firms where they're more the GP style. The exception of course are the 'specialists', but even then over a quiet drink a reasonable number of them admit that no one can truly be an expert, as knowledge is continually being amassed down different pathways...

No, they're 'professionals' simply because their 'professions' are eons older than ours, and had well established their rules, self-regulating bodies and power base in society well and truly before the modern age.

The rest of your comment I 100% agree with.

they were able to establish a power base, BECAUSE of their expertise in their domain of knowledge, and then by making a jurisdictional claim (Abbott, Andrew The system of professions) over that domain of knowledge to the exclusion of everyone else.

they did not become professional because they self-regulated, they were allowed to self-regulate (in a contract with society) because they were experts first (over their domain of knowledge)

personal financial planning does not (yet) have an academic base over which we can lay a jurisdictional claim.

as such we cannot assert our 'jurisdictional claim' over a domain of knowledge and call ourselves a profession (yet) and exclude others from it, but we are getting there

the financial planning research journal which the FPA funds, is one part of our development journey into becoming a profession by developing knowledge in the domain of personal financial planning exclusive to us.

that domain knowledge coupled with the statutory claim (recognized right), will, over time, give us a right to claim jurisdiction over financial planning, and then we too can exclude others and claim to be experts

until then, happy studying

love Bobby

Good points made.

Well articulated Bobby, and acknowledge all aspects of your 'jurisdictional claim' points.

However, as stated, well over 75% of doctors and lawyers are not 'experts' as per the original comment.

They have been very well educated in their endeavours and hold appropriate qualifications and have a far better idea of that field than almost all people in the general public, however as they act predominantly as GP's they're adequately equipped at best to handle most enquiries or issues to the best of their individual knowledge.

All the above equally applies to most standard financial planners (those adequately qualified and not just the weekend weet-bix qualifications that used to be allowed and are now being stamped out fortunately).

If doctoring or law was an extremely young profession (ludicrous but bear with me) and if there were existing opposing powerful political and multi-billion financially vested interests at stake, regardless of all other aspects based on 'knowledge', 'academia' or 'expertise' they would also be subjected to the exact same machinations and intentional regulatory obfuscations that we're currently faced with.

Yes but I don't think anyone really cares.

The fact that there are financial "professionals" complaining about having to justify their advice is either a poor joke, or that financial planners/advisers were never anything more than glorified salespeople. The Royal Commission has shown not only the finance sector to have no integrity, but completely inept at what they were supposed to be experts of. If the so-called veterans want to leave, let them.
Whatever it is the sector needs, it isn't individuals who claim to be professionals, yet lack the basics of grammar. If one cannot be bothered to check what they have written publicly, then they deserve the image that society has given them. In other words a bunch of incompetent, dishonest hacks, who cannot even justify their own statements without using word-salads.

What's your occupation?

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