Excessive regulation has been the chief driver behind the increase in costs and complexity of financial advice and the decline in its accessibility and affordability, according to the Association of Financial Advisers (AFA).
In a submission lodged in response to the Australian Securities and Investments Commission’s (ASIC) Consultation Paper 332, which is examining access to affordable advice, the AFA also pointed out the government and regulators had done little to reduce that burden and even less was being done to promote the value and purpose of advice.
“It is our view that the regulatory regime is a key driver of increased costs and complexity in the financial advice sector, which is in large part responsible for the decline in accessibility and affordability,” the submission stated.
“This is not to discount other contributory factors, but instead to highlight that the regulatory regime is probably the most important factor,” it said, pointing out regulations have been subject to fundamental change on an ongoing basis, adding further costs and complexity to the financial advice model.
“Whilst we accept the need for a rigorous regulatory regime, we also believe that there needs to be a sensible debate about finding the right balance. It does not make sense to continue to increase the regulatory obligations for all financial advisers whenever there is evidence of wrongdoing.”
The body called for an industry-wide examination of the balance between necessary protections for consumers and the risk these controls will make advice inaccessible to most people.
It said advisers were subject to overlapping and conflicting regulations from ASIC, the Tax Practitioners Board and Financial Adviser Standards and Ethics Authority and recommended the creation of an ASIC/Treasury/industry working group to improve the level of regulation and processes related to advice.
The submission also noted a lack of preventive work being carried out by ASIC and while stating it had been a “vigorous regulator” in responding to known misconduct, little had been done to help the financial advice sector improve its compliance.
“The fact that ASIC spent $56.2 million in the oversight of financial advisers who provide personal advice to retail clients in the 2019/20 year is proof of this,’ the AFA stated, noting this was the highest spend by ASIC on any of its supervised communities.
The submission highlighted that out of that figure, the regulator had spent $19.9 million on surveillance and enforcement, but only $800,000 on education and guidance.
“The banking royal commission resulted in demands for ASIC to be more assertive and to litigate in preference to pursuing enforceable undertakings,” it said.
“In the financial advice context, this seemed to result in a regulator who was already very vigorous and assertive becoming even more so and seeking to litigate before consideration of other options.
“It is important to appreciate the fear that this mantra has created on top of what was already a very apprehensive advice community.
“We believe that ASIC should consider a mantra based upon ‘prevention is better than a cure’ and significantly increase their focus on education and guidance.”
In conjunction with this, the AFA called on ASIC to promote the value of advice where applicable to rebuild confidence in the sector.
“For too long there have been too many commentators talking down financial advice and this has obviously impacted the reputation of the financial advice sector and the level of consumer trust,” it said.
“We are conscious of the important role that ASIC plays as the regulator of financial advice, however, we believe that there is an opportunity for ASIC to also talk more publicly about the value of financial advice. ASIC is a trusted source of information for consumers and can put better balance into the debate in this area.”
