Government policy approaches to financial advice have been “siloed and unintegrated” and should be replaced with a model of “cohesive co-regulation”, argues Lonsec in a new white paper.
The white paper – launched as part of Lonsec’s ‘better investment outcomes’ project – challenges the dominant post-GFC policy thinking on the financial product chain, hitting out at the “ad hoc, generally reactive” regulatory approach of recent years and proposing a number of reform recommendations.
“Industry is almost exclusively regulated by government (vs. ‘co’ or ‘self’ regulation) so actioning changes has primarily fallen upon government (and to a lesser degree ASIC),” the white paper penned by Lonsec’s Richard Everingham states.
“And it is here that the lack of an overarching cohesive co-regulatory policy to bring together the participants of the financial product advice chain has been telling,” it continues.
“In its absence, the government’s response has been siloed and unintegrated – firstly through legislation aimed at financial planners (FOFA), then through a Senate review of ASIC, and now through proposed amendments to FOFA.”
The white paper proposes a new approach to regulation that acknowledges that “consumer education/protection and the profit motive are not mutually exclusive” and calls upon all stakeholders in the financial product advice chain to take greater responsibility for professional standards.
Among a number of recommendations, the paper suggests that the FPA, AFA, FSC and ASIC unite to form a “working group” to create a regulatory framework to foster a co-regulatory approach.
In addition, it calls for financial planning industry association codes of conduct and ethics to be “approved by ASIC and made mandatory and enforceable” – echoing a key proposal of the FPA’s 10-point plan.
Government is called upon to establish and fund a “new discrete and independent not-for-profit body” to develop an education service for advisers and consumers, modelled on the government’s existing ‘NPS MedicineWise’ project in the medical industry.
The white paper back’s the FPA’s proposal to “enhance ASIC’s powers of financial product intervention” as well as calling on the government to provide additional short-term funding to ASIC.
It also suggests financial advisers adopt a “reduced focus on research house ratings in isolation” and deepen its "understanding and application of behavioural finance concepts".
Do you support the philosophy of co-regulation? Have your say below
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