It’s the (financial planning) regulation, stupid

Mike Taylor

Managing Editor/Publisher, Financial Newswire

16 January 2023

EDITORIAL

Former US President, Bill Clinton, adopted the phrase “it’s the economy, stupid”. In 2023, Assistant Treasurer and Financial Services Minister, Stephen Jones, should adopt the phrase “It’s the regulation, stupid”.

2023 will be a pivotal year for the financial planning profession because the Quality of Advice Review (QAR) combined with the work of the Australian Law Reform Commission (ALRC) are poised to significantly change the ground rules for advisers, licensees and superannuation funds.

And what should not be forgotten is the fact that, following its election in May, last year, the Federal Labor Government bundled a range of long-festering issues into the QAR process, not least the future of commissions-based remuneration for advisers with respect to the Life Insurance Framework (LIF) and the “experienced pathway” with respect to adviser education standards.

Right now, the number of advisers on the Financial Adviser Register (FAR) has stabilised reflecting the fact that the career deadlines which attached to passing the Financial Adviser exam have passed and that many advisers have paused their career strategies while they await the rules which will apply to the “experienced pathway” and the broader outcome of the QAR.

The Assistant Treasurer and Minister for Financial Services, Stephen Jones was handed the final recommendations of the QAR by its chair, Michelle Levy, just prior to Christmas and, having digested its content has likely asked his advisers and Treasury to develop a submission which can be taken to Cabinet.

Many things have changed since Levy was tasked with undertaking the QAR by the previous Morrison Liberal/National Party Government not least the fact that the number of financial advisers has dropped to 15,800 and that while many of those advisers have never been busier, Australia’s two largest financial planning licensees, Insignia and AMP Limited, are still struggling to deliver advice profitably.

Indeed, an analysis of licensee profitability undertaken by Financial Newswire in the middle of last year identified a significant number of licensees who were struggling to generate an adequate return on investment (ROI).

There is no shortage of demand for professional financial advice but there now exists a fundamental shortage of financial advisers and a regulatory regime which has undermined the ability of licensees and advisers to deliver that financial advice affordably.

On what is already known of the direction of Levy’s final QAR recommendations the Government will be urged to broaden the scope of so-called “general advice” while giving superannuation funds greater capacity to deliver financial advice and clearing the way for the greater use of digital advice.

Adoption of some of these measures will likely work to improve the accessibility of advice, but any examination of the current commercial environment confronting advisers and licensees will tell the Government that the real gains will be made by first conducting an audit of regulations and then rolling back the layers and consequent cost impacts.

Administering the Australian financial services portfolio is not a popularity contest, but the fact that former ministers, Josh Frydenberg, Kelly O’Dwyer and Jane Hume have been slated by a poll of financial advisers aligns with the fact they imposed, rather than removed, regulation.

When Stephen Jones eventually announces the policy changes the Government will pursue as a result of the QAR and ALRC exercises he should bear in mind the need for balance and that no sector can prosper and grow when it is weighed down by regulation.