Is financial advice being legislated and regulated towards market failure?
In an article being circulated amongst financial planners, a Sydney lawyer has argued that lawyers are regulated nowhere near as heavily as financial planners, that financial planners have been legislated to within an inch of their lives and that, on occasion, the Australian Securities and Investments Commission (ASIC) has exceeded its legislative brief.
The article, written by the managing director of Hamilton Blackstone Lawyers, Cristean Yazbeck argues that a range of these factors and others has brought the financial planning industry to the brink of market failure.
The article traverses a range of issues and even suggests that “ASIC no longer wishes to work licensees and planners” and “has a vendetta against them” suggesting that ultimately advice will be priced out of the reach of ordinary Australians and lead inevitably to market failure.
"Market failure, as we know (at least in an economics sense), essentially arises where there is an inefficient distribution of goods and services in a free market, such that it leads to irrational behaviours and outcomes. Furthermore, the individual incentives for rational behaviour do not lead to rational outcomes for the group,” Yazbeck’s article said. “Put another way, individuals make what appear to be correct decisions for themselves, but those prove to be the wrong decisions for the market.”
“Sounds disturbingly like the financial services industry, does it not? Look at ASIC’s behaviour. Look at the legislation. Look at the way service providers act in their self-interests (product providers, compliance consultants and lawyers, 8-figure ‘remediation’ programs run by the Big 4 accounting firms, to name a few – where everyone is both out for themselves and acts to protect themselves).
“In an economics sense, this leads to a net social welfare loss (in this case, consumers suffer greatly, because of the increased costs of, and limited access to, financial advice and services). Stakeholders’ pursuits of self-interest lead to inefficient and adverse outcomes for consumers.
“Ironically, in a traditional economics sense, it is the role of governments to intervene to correct this market ‘failure’: however, ASIC and the legislature appear to be the main protagonists. In any event, the end-consumer loses.
“Everyday Australians are being priced out of advice and services, and therefore improved retirement outcomes. The social welfare costs (especially the increased reliance on the public purse as a consequence) are immeasurable.
“ASIC’s ‘shoot first, ask questions later’ approach has crippled the industry. One mistake, and you’re out! Recent experiences show that they’ll keep looking until they find something. They’re no longer about the consumer. They’re no longer about educating and working with planners. Rather, we’re at the mercy of the equivalent of a top-tier litigation law firm, filled with gun-toting mercenaries governed by a mandate to seek and destroy. And they’re comfortable enough to act unlawfully and outside powers, knowing licensees and planners are too exhausted and resource-drained to take up the fight.”
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