Two politicians from either side of the political aisle got it right this month when they identified the degree to which the financial planning industry has become over-regulated.
On the left hand side of the aisle was Labor’s Shadow Minister for Financial Services, Stephen Jones, who reflected upon the manner in which a succession of well-meaning Governments had introduced legislation around financial planning only to see that legislation translated into deeply-layered regulation.
On the right hand side of the aisle was the former chief of staff to former Minister for Finance, Mathias Cormann, West Australian Senator, Slade Brockman, who used a speech to the Parliament around yet another piece of well-meaning legislation to point to the increasing burden being placed on an industry which is already over-burdened.
The legislation to which Senator Brockman referred was that imposing annual client opt-ins on financial advisers all because it had been one of the recommendations resulting from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. It is worth noting that Brockman, who is no political neophyte, reflected that it was most unusual for a Government to commit to implementing all of the recommendations of any Royal Commission.
Brockman said he feared that the suite of changes made to financial planning over the past decade “has created an environment where the cost of advice will increase and some Australians will not be able to afford high-quality financial advice and so will be forced into more set-and-forget products, like superannuation”.
His fears are legitimate and need to be properly understood by his colleagues in the Parliament. Both sides of politics have been guilty of adopting a band-aid approach to the perceived ills of the financial planning industry – legislating over and over, regulating over and over – without ever once conducting an analysis of what sat at the root cause of the problems.
Financial planners themselves have always known the root cause – the use of financial advisers as product distributors and a Corporations Act which, to this day, continues to define ‘advice’ as relating to the provision of a product.
SECTION 766B MEANING OF FINANCIAL PRODUCT ADVICE
(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or.
(b) could reasonably be regarded as being intended to have such an influence.
Unless and until this Government or its successor addresses this fundamental problem – which was somehow overlooked or ignored by the Royal Commission – then little real progress will be made. And, in addressing the problem of Section 766B, the Government should fully audit the layers of regulation generated by “well-intentioned” but often-times politically expedient regulation and wind them back to something which relevant, manageable and affordable.
For most financial planners with solid ongoing relationships with their clients the annual renewal arrangements should not be overly burdensome, but Senator Brockman and scores of financial advisers are right in suggesting that Hayne was not 100% right and the legislative change was not warranted. Once again, well-meaning politicians have added another regulatory layer.
Right now, ASIC is conducting its affordable advice review. Given that ASIC should properly be regarded as a corporate cop rather than a policymaker, any Government wanting financial advice to be more easily obtained and affordable should initiate an independent review with the Productivity Commission being a much more appropriate vehicle than the regulator.
