Call it chutzpah, audacity or just plain hypocrisy, but the FSC’s call for reform in its recent Whitepaper for Financial Advice is nothing if not disingenuous.

Its focus on unnecessary regulation in advice and the declining profitability of licensees ignores the reality that this “over-regulation” was caused by, or was a response to, its members’ own acts or omissions. The Life Insurance Framework laws, fee-for-no-service transgressions and the attendant remediation costs were, for example, related to its members’ distribution strategies, incentive models and product design principles.

Perhaps the single, greatest challenge to the emergence of a sustainable advice profession is the FSC itself; a cabal of product distributors whose reforms and revisionism ignore the significant role its members played in gaming advice, industrialising product distribution and demonstrating the mismanagement and maladministration that led to the Hayne Royal Commission.

In my view it’s particularly ironic that an association whose members railed against the uncertainty and complexity of principles-based regulation, and lobbied for carve-outs and prescription, now complain about the situation they midwifed into being.

Beyond signalling its own irrelevance, the FSC’s white paper – devoid of either irony or self-awareness – demonstrates an alarming mix of naivete, ignorance and cunning. For example, its imputation that “a cookie cutter approach to the advice process” was the result of mandatory disclosure requirements (rather than licensee conservatism, risk aversion and a focus on efficiency) ignores the law, ASIC’s own guidance and their members’ over-reliance on ‘regulatory fear’ as a control and compliance measure.

But, as flawed and infuriating as the FSC White Paper might be, it’s not an entirely wasted exercise. It’s neither entirely without merit nor entirely self-interested, but it’s fundamentally flawed because it continues to prioritise distribution over advice and ignores the historic consequences of that choice.

Real regulatory reform requires us to first consider the duties advice professionals owe their clients and, second, to acknowledge that regulatory complexity and increased cost are (at least in part) the consequences of the choices, conflicts and conduct of the product manufacturers and institutional distributors.

Our advice processes are, to a great degree, still dictated by legacy models, flawed interpretations, risk-aversion and supplier preferences. Too frequently we make, and embed, choices that are more conservative and legalistic than even the regulators require.

ASIC chides our industry for its conservatism, but we react by rationalising that our interpretation is legitimate and exaggerating fears of regulatory action. Indeed, the myth of technical breaches underpins the FSC’s denialist approach. For example, its populist assertion that advisers “should not be subject to harsh penalties for technical breaches of the law” lacks any example and appears entirely inconsistent with the reality of regulatory action.

Real regulatory reform and the sustainability of the advice profession depends on advisers, and advice businesses, advocating for change that will help consumers and the profession. Instead of deferring to the views and interests of product manufacturers, advice professionals need to promote a competing narrative and courageously pursue solutions to complexity and cost that do not simply replicate, and legitimise, the assumptions and errors that defined institutional ownership.

It’s by acknowledging the past, and committing to do better, that we’ll build an advice profession – we just need the courage, awareness and willingness to do so.

We can start by acknowledging the flexibility the law provides and working to remove the unnecessary constraints we’ve voluntarily (or ignorantly) assumed. It might not be easy, but neither is it impossible; we simply need leaders that recognise an advice profession can’t be built on fear, blame and excuses – it’s built on confidence, accountability and engagement.

 

*Sean Graham is managing director of compliance consultancy group Assured Support.

4 comments on “Reform by gaslight: Why the FSC’s plan for advice doesn’t add up”
  1. Avatar
    Mitch Bradshaw

    That’s a cracking article Sean. Nailed it.

  2. Avatar
    David Graham MAppFin CIMA®CFP®

    Could not agree more. There remains a need for advisers to reframe as the ‘gate-keepers’ for client outcomes rather than distributors of manufactured products. In this role it is incumbent on us to filter out the marketing ‘bullshit’ and prioritise client needs. It sounds obvious, but even within ASIC the language remains ‘distributors of product’, rather than the arbiter of what is good for a client. Note the recent language in regard to TMD & DDO obligations.

    We all have relationships with product manufacturers and the better ones understand our first obligation is to our clients. However, there will always be a conflict between product manufacturers who rely of sales volume metrics and those of us trying to optimise client outcomes.

  3. Avatar
    Jeremy Wright

    Uncertainty and fear are unfortunate legacies of the world that Licensees, Advice practices and Advisers live under now.

    Interpretation is the one word that engenders uncertainty and fear, as it is a very real threat.

    It would help if the Regulators could provide more certainty when presented with platform solutions, that would then give everyone a basis and foundation to work from.

    Needing to get legal advice is expensive and can be challenged, which makes it even more expensive and the risks increase for Advisers and Licensees, which takes us back on the merry go round and continues the pattern of anxiety, which is a major cause of the current predicament and exodus of thousands of good, decent Advisers, with insufficient numbers of new entrants to make up the massive shortfall.

  4. Avatar
    Steve Thomson

    Great article Sean. Whilst ever our “industry bodies” continue to listen to and take event sponsorship from the FSC we will get the same outcome. The path to professionalism of advisers does not include product providers, particularly those members of the FSC that have exited advice and lefty us with the cost and the mess.

Join the discussion