Michael Peters

New legislation is intended to more closely regulate the duties and pay arrangement of financial planners.

However I would argue that more regulation is not the answer.

Financial Services Minister Bill Shorten’s new legislation has been largely supported by the financial services industry however the chant coming from government once again is ‘when in doubt regulate’.  It will only increase costs, make it less accessible and is unlikely to provide better advice.

Under the legislation, known as Future of Financial Advice (FOFA), financial planners will be obligated to renew contractual arrangements with clients every two years from the beginning of July next year.

It is proposed that what are called ‘fiduciary duties’ are to be codified, however most of what the law will require is good business practice, so why make it law? Why not put it in a code of behaviour endorsed by ASIC and enforced by the ACCC like other professions such as travel agents?

As proposed the legislation will also offer more powers for the financial regulator, ASIC, which will be given additional power to intervene earlier, as well as allowing the regulator to ban financial planners in certain circumstances.

Why are we using regulation to make people feel immune from the market place – which will sometimes lose them money?

People will still miss out on their bet on the stock market or interest rates, and that is quite simply how markets work. Protecting people from themselves through more regulation does not mean people will not lose money. Instead, it means those with money are likely to get access to better advice than those who cannot afford it.

Under the legislation, brokers would have to restructure remuneration arrangements on margin lending, cash management and banking products, and other product solutions sold to retail clients such as managed funds.

There is enough law to regulate planners and advisers; it’s just a matter of enforcing these rules, rather than making more law.

Michael Peters is a Lecturer in Business Law and Taxation at the Australian School of Business