Regulation alone won’t solve financial advice woes

By George Lucas, chief executive of Raiz

More regulation will be the most likely result after the Hayne royal commission hands down its final report. But is this really the answer?

When then financial services royal commission hands down its final report by 1 February 2019, it’s odds-on it will call for more regulation. And the government of the day will duly oblige, rightly fearing the political fallout if it fails to implement the report’s recommendations in the wake of the malevolent behaviour being unveiled.

The legislation will pass the Parliament, giving the regulators more power to keep the top end of town in line. And the regulators, whose reputations have been mauled in Kenneth Hayne’s courtroom, can be expected to finally bite more than they bark.

But will more regulation prove the answer – or will it just be a political panacea for government. I suspect the latter.

Remember, after the Storm Financial implosion in January 2009 came the FoFA reforms (belatedly), taking effect on 1 July 2012.

That legislation addressed conflicted remuneration structures, required financial advisers to act in their clients’ best interests, had an opt-in obligation requiring advice providers to renew their clients’ agreement to ongoing fees every two years, and gave ASIC more powers. Yet clearly it was no solution. It led to an acceleration in the vertical integration model, also encouraged by regulators to reduce the number of entities to regulate. The result was to produce the very issues being aired at the royal commission.

What inquiries, including royal commissions, don’t do – but governments that receive their recommendations should do – is question the industry’s structure, the over-arching policy goals and, in this instance, consumer behaviour, before responding. The government can then determine the KPIs for regulatory bodies, perhaps without adding more regulation. But don’t hold your breath.

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Source: Regulation alone won’t solve financial advice woes – ifa