Robust regulation is needed to overcome market inefficiencies and address information asymmetry. It is needed to protect those who are in a disadvantaged position relative to other players in a market.
However, over the past two decades, advice and services, including those traditionally provided by professional accountants, have become increasingly regulated. This has been through a combination of new legislation and regulations or continual amendments and additions to existing obligations.
Often these reforms appear to be implemented in isolation, sometimes duplicating existing regulation, without considering existing legislative obligations, interaction with other regulatory regimes or how multiple reforms may impact on the provision of advice and services and importantly the associated compliance burden and cost.
The principles of good regulation often appear to have been forgotten, given the proportional impact on the smaller end of the market.
What is often also missed is the fact many of these recent legislative reforms have and are impacting on the same groups, including professional accountants providing advisory services to their clients, many of whom are consumers themselves and also small to medium-sized enterprise (SME) or business owners.
For example, the definition of a tax agent service in the Tax Agents Services Act 2009 was deemed to capture the tax consequences of financial product advice provided by financial advisers. This resulted in financial advisers being required to register as a tax financial adviser (TFA) with the Tax Practitioners Board (TPB). If the financial adviser is authorised to provide the advice under a corporate authorised representative (CAR) structure, they must also register the CAR as a TFA. Where the financial adviser is a professional accountant, it is common for their practice to also be registered as a company tax agent.
This means three registrations are needed to provide professional tax agent services to the one client.
Additionally, where a professional accountant is licensed to provide financial product advice, they are prohibited, in their capacity as a professional accountant, from providing advice to clients about how they can comply with superannuation legislation. Rather, the Australian Securities and Investments Commission (ASIC) requires this advice to be provided in their capacity as a financial adviser, resulting in higher costs to their client.
This complex legislative framework is difficult to understand and navigate. It also results in increased costs and time burden to provide the same services to their clients.
The recent implementation of the ASIC Industry Funding Model is a further example of a reform that has significantly increased compliance costs for those ASIC regulates.
While the objective of the majority of these reforms has been to ensure robust and effective consumer protections are in place, one of the consequences is seeking advice and services has become more complex and costly, pushing it out of reach for many consumers.
Concurrently, we know from CPA Australia member feedback and broader surveys of the sector that it is also forcing many advisers to reconsider whether they continue to provide advisory services. For others it imposes a barrier to entry for those considering whether to expand their practice or move into advisory services.
It is worth noting the broader regulatory impact is being felt by larger participants. Westpac, for example, recently announced it will withdraw from the personal financial planning market as the layers of regulation have made this space unprofitable for its business.
In light of all these factors it is time to rethink the regulatory framework and to create one that enables and encourages the provision of affordable, independent quality advice by professionals and seeks to engage and inform, not overwhelm, the consumer in the process.
We need to identify how we can reduce legislative complexity and harmonise obligations to remove inefficiencies and associated costs, yet provide real and effective consumer protections to encourage the broader community to seek advice. Consideration must also be given to how regulators can be more effective and efficient in their oversight of the sector, especially when, for example, ASIC’s costs are largely borne by professional service providers and passed onto consumers through the cost of seeking advice.
It’s time to rethink regulation and improve access to quality advice. To this end, CPA Australia has launched a new project, Rethinking advisory regulation – Improving access to advice. Working with our members, consumers and small business, we will explore and identify the changes needed to address the growing issues of complexity and inefficiencies in our current regulatory market and improve access to quality advice in the client’s best interests.