You want to reduce advice costs? Then reduce regulation
There exists a contradiction on the part of the Government in supposedly pursuing the delivery of affordable advice – on the one hand it has commissioned the Australian Securities and Investments Commission (ASIC) to review the matter while, on the other hand, it appears to be intending to increase the levy imposed on financial advisers to fund ASIC.
At the same time as ASIC receives submissions as part of its affordable advice review, the Federal Treasury is in the throes of developing a May Budget which seems very likely to include an increase in the levies required to run ASIC, the Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO).
Also revealed in the Budget will be precisely how much more will be directed towards ASIC to deliver a Single Disciplinary Authority covering the financial planning industry.
It is now history that the Government opted to move ASIC out from under the Public Service Act and to move it substantially off-Budget by introducing a user-pays model. It is also now clear that in undertaking that move the Government and its departmental advisers failed to adequately examine the consequences.
What the Government and the Treasury failed to adequately recognise was that even before they started on implementing the user-pays model for ASIC, regulatory compliance represented the single biggest cost inflicted on financial advice firms and financial advisers and something which was flowing almost straight through the fees imposed on clients.
So, whilst ASIC focuses on the undoubted cost-effectiveness of intra-fund advice and the potential of artificial intelligence and digital advice, it should also be focusing on how much cost could be removed by thoughtfully and consultatively removing the layers of regulation imposed on the financial services industry and the delivery of advice in particular.
And what the Government should be focusing on is whether, in all the circumstances, a user-pays regime is appropriate for funding a Commonwealth regulator which, in recent months, has been seen to have been less than rigorous in terms of risk management around its own expenditures – something which has contributed to the forthcoming departure of its chair, James Shipton and has already seen the exit of his deputy chair, Daniel Crennan.
Thus, the Financial Planning Association (FPA) is right to have used its pre-Budget submission to argue for a review of the annual levy arrangements aimed at making them more predictable and more reflective of the capacity of financial advisers to pay.
As the FPA pointed out: “The levy per financial planner has increased from $934 in 2017-18 to approximately $2,000 in 2019-20. In three years of operation, the levy for financial planners will likely have more than doubled and there is no indication that increases of this scale will cease for 2020-21 or future years”.
But many in the financial advice industry would argue that the FPA has been wrong to have indicated its support for an industry-funded regulatory model when there are good reasons for the regulator itself to be the subject of closer Budget scrutiny and governance oversight.
Over the past 15 years, Governments of both stripes have tended to treat ASIC not so much as a regulator and arm of Government but as a “stakeholder”/policy-maker. Former opposition leader, Bill Shorten, was particularly guilty of this approach during his time running the financial services portfolio.
ASIC is not a stakeholder in the industry. It is an arm of Government. It is the regulator and it should be appropriately funded to meet its obligations to protect the interests of Australian taxpayers.
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