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It’s time to fix our complex and costly legal framework FINANCIAL PLANNING


The biggest challenge facing financial planning firms today is not retaining customers or attracting new businesses, but the overly complex regulatory system that is holding back productivity, writes FPA CEO Dante De Gori CFP®.

The evolution of the financial advisory profession in Australia from a product-based sales model to a paid advisory offering has brought about a long series of regulatory developments.

As our profession has grown and the role of a financial planner has changed, so has the role of regulators in overseeing the sector.

Unfortunately, every new regulatory fraud doesn’t negate its predecessor. There is no central system or single source of truth when it comes to regulating financial advice. In fact, it’s hard to imagine a profession that is as heavily regulated by a multitude of government agencies as financial planning.

A alphabet soup from the regulators

The Australian Securities and Investments Commission (ASIC) oversees licensees, but not individual planners.

The Tax Practitioners Board (TPB) monitors individual planners, but only on tax issues.

The Financial Adviser Standards and Ethics Authority (FASEA) does not oversee financial planners, but sets standards for them.

Finally, the Australian Financial Complaints Authority (AFCA) monitors consumer complaints against financial planners through their licensee. It should be noted that only 1.6 percent of all complaints the agency received in the past six months were related to financial planners. This number is declining and an important indicator of success.

ASIC, TPB, FASEA, and AFCA all play a role in regulating the financial planning profession. And that without taking into account the role of APRA, AUSTRAC and ATO in regulating advice (not to mention the upcoming introduction of the ACCC into the mix).

The impact of this regulatory structure on financial profitability, productivity and the effectiveness of financial planning practices across the country is significant.

Each regulator imposes its own type of governance on a financial planner’s business, from compliance with the AFSL to educational standards. And each of these features has its price.

The cost and complexity of regulation

In 2019, 61.4% of FPA members named regulatory costs as their biggest challenge, up from 54.6% in 2018.

The rising regulatory costs are ultimately borne by customers as financial planners are forced to increase their fees to cover the inflated costs of compliance. Most of the practices are small businesses and compliance has become a significant expense.

Some of these regulatory costs are increasing at an unacceptably fast rate, reducing the affordability of advice. For example, ASIC estimates that the industry finance levy for 2019-20 is up 38% year over year and up 62% over the past two years.

Cost isn’t the only problem. The existence of multiple regulators and government agencies, each with a specific role in steering financial planning practices, has resulted in an extraordinarily complex system. It’s one that can best be described as fragmented and dysfunctional.

The presence of multiple regulators creates inconsistencies in regulation, with no single authority overseeing financial advice. As a result, consultants’ frustration with the increasing wave of regulation will lead to greater segregation and future regulatory efforts to reduce the compliance burden will be greeted with skepticism.

The solution

Reducing this costly and overly complicated system requires government action.

The Morrison government will set up a single disciplinary body in 2021 as part of implementing the recommendations of the Royal Commission. While little information is available on what this body might look like, the FPA believes it is imperative to use the single disciplinary body to consolidate the current legal framework.

A single disciplinary body must streamline regulation, not complement it. Not only would this consolidation benefit financial planners by reducing costs and increasing efficiency, but it would also allow them to offer more affordable advice to potentially more Australians. The fact remains that the majority of Australians who seek financial advice cannot afford it. It remains an essential service largely reserved for the rich, who can continue to subsidize this complex and costly legal framework.

The sole disciplinary body should take over the key functions of ASIC, FASEA and TPB in relation to financial advice, with primary responsibility for state oversight of the conduct of financial planners, setting binding professional standards, investigating possible violations of binding standards and laws, and applying discipline.

A single disciplinary body should be a single source of truth. Improving the productivity of financial planning practices and those who regulate them is essential for the continued growth of the profession and the provision of affordable financial advice.

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