Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Gambling operator woes highlight draconian advice industry regime
News last week that Star Entertainment, operator of The Star casinos around Australia, had followed Crown Resorts in being found ‘unfit’ to hold their casino license by an independent commission, serves to highlight just how harshly regulated financial advice is.
Each of Australia’s major casino operators has apparently failed to meet Anti Money Laundering and Counter Terrorism Financing requirements, not to mention a laundry list of other issues raised by competitors. This is the same legislation that covers financial advice and has contributed to simple investment application documents now extending beyond 20 pages.
Yet despite the clear issues within these businesses, somehow each has retained their ability to operate despite being reportedly unfit to do so. A similar case could be made for other professions like politics, law or medicine, whereby there tends to be an overriding trust in operators to ‘self-regulate’ and weed out the bad eggs themselves.
This is the complete opposite of the events that followed the Hayne Royal Commission, which have resulted in what may be the most prescriptive legislation of any profession in the country. Highlighted regularly in this column are the challenges of delivering advice expediently to clients while meeting the ‘dot point’ checklist that is the ‘safe harbour’ process, or covering off every possible risk in a ‘compliant’ statement of advice, only to be told it is excessively long.
Similar comparison could be made between financial advice and gambling, with advisers required to disclose each fee charged to a client up to four times per year while also ensuring the client ‘opts in’ to said service every 12 months, a process that confuses even the most loyal clients.
Gambling, on the other hand, has scant limits or real consumer protections.
In advice the masses have been punished for the sins of the few. While much of the insurance and banking sector has left the financial advice sector, those advisers remaining continue to pay the lion’s share of the cost to pursue these groups in court for the same advice practices that caused what many deem to be the overregulation that exists today.
The human cost is also very real, with the number of registered advisers having halved in just a few years. Thousands of careers have been prematurely ended, not just by their own missteps but by the introduction of education requirements that are now scheduled to be pulled apart, not to mention the real mental health toll that is now seeing the light of day as advisers emerge from years of compliance pressure.
It isn’t all negative though, with hope clearly on the horizon amid the Australian Law Reform Commission’s review of the Corporations Act and Michelle Levy’s wide-ranging recommendations in the Quality of Advice Review.
Whichever way you look at it, the reversal of what has been a prolonged period of aggressive regulation should be welcomed.
Comments this week suggest Levy is seeking to apply a reasonableness test, meaning that at the time advice is given it simply needs to be deemed to leave the client in a reasonably better position. This is likely to be far better than the current, more punitive approach.
