Everything happening in wealth management at the moment seems to be pointing towards a likelihood of more regulation coming down the pike. The weird thing is that a tightening of the regulation burden feels a little out of step with the prevailing economic environment.
It’s often said that regulation swings like a pendulum, between too much and too little, passing over what could be described as a regulatory sweet spot, if only for a fleeting moment, but never standing still.
History tells us that one of the by-products of a period of tough economic times is a subsequent lightening of regulation, because businesses can safely argue that governments are stifling economic growth. Meanwhile, at the end of periods of exceptional economic activity and growth, it doesn’t take long for people to start asking why government and regulation have been so absent as the sins perpetrated by big businesses are revealed.
While there’s no doubt that we have, as a nation, enjoyed the fruits of an unprecedented asset price boom, thanks to more than a decade of central bank stimulus and loose monetary policy, we are hardly coming off a period of wild economic growth, and predictions for future economic growth are uninspiring at best.
Given this environment, despite the strong argument to suggest the government will wield its sword and bring in a raft of unnecessary and preclusive regulations, the historical norms would suggest otherwise.
Bernie Ripoll, the former Labor MP instrumental in the introduction of the Future of Financial Advice legislation, who is also on Professional Planner’s advisory board, recently described the mood in Canberra as ripe for coming down hard on the industry.
It’s easy to see why Ripoll thinks this way. Trustees of major superannuation funds are next in line for a grilling, following hot on the heels of the Privacy Commission’s latest report, and with the Hayne royal commission’s findings of fee-for-no-advice, etc., still ringing in the ears of advisers. There is no shortage of evidence to suggest the goalposts could be about to be shifted.
By comparison, US regulators seem to be repealing, not adding. The financial deregulation bill has passed through the US Congress and Dodd-Frank seems to be unspooling.
Meanwhile, here in the local advice market, all conversations seem to lead to a discussion around what style and tenor of oversight will enable the industry to win back the trust of consumers and, ultimately, bond the best parts of the profession together towards a new and improved future.
Higher education standards will attract a new type of financial adviser into the industry, and many existing advisers with experience, but fewer qualifications, will leave.
Banning commissions and separating advice and product makes sense but it will be jolting and will inevitably leave behind many broken business models and unadvised clients. Just how hard the policymakers will come down is in anyone’s guess at the moment; we’ll know more in September, when the royal commission’s draft report comes out, and then in February when the final report is due.
For now, professionals in the advice and wealth management industry can indeed hope that policymakers might peel back rules, rather than add new layers on top of regulation that doesn’t work.
An earlier version of this article appeared as the Editor’s note in the July edition of Professional Planner.
