Proposals for the industry to foot ASIC’s bill may actually benefit the advice profession
I rarely agree with Greg Medcraft but his longstanding crusade to move ASIC to a ‘user-pays’ funding model may not be a terrible idea.
Now, I realise this may seem counterintuitive and – judging by a recent ifa straw poll in which 80 per cent of respondents voiced opposition to the proposal – I am possibly entering the realm of heresy.
But hear me out.
The government claims its proposal is “not about increasing ASIC’s budget” but it’s fairly clear that, in the face of budget cuts in recent years, this would be the result. In all of the years ASIC’s leaders have been pushing this agenda, the rhetoric has been about it being inadequately funded to properly carry out its mandate.
No doubt some of you may understandably baulk at the sound of being subject to an ASIC that has even more items (and cash) in what it calls its “regulatory toolkit”. Well, if a ‘user-pays’ system is introduced and ASIC operates the way it always has then I think those concerns are well founded.
However, should the dramatic shift in the funding model produce a dramatic shift in the regulator’s modus operandi, then small business advisers could be the (unexpected) benefactors.
First, a better-funded ASIC would be able to more effectively target the big end of town instead of maintaining its historic and narrow focus on independents and one-stop shops. ASIC has repeatedly denied it picks on the little guys, but then why was it Fairfax journalists and not the regulator that first took action against the Commonwealth Bank?
Under intense pressure, ASIC has now embarked (finally) on a widespread investigation of the major wealth management firms, and a ‘user-pays’ system may well ensure it continues on this new trajectory and let smaller licensees get on the with the business of growth, innovation and servicing clients.
Should this occur we may actually see our regulator working for competition in the sector and not against it, signifying a most welcome change of pace.
Second, ASIC has said in the past that while it believes a model of individual licensing for the advice industry is a good idea, it lacks the funds for such a sweeping change. In other words, the status quo – in which major product providers and licence owners control advice businesses all over the country that they do not even own – suits ASIC just fine because to be organised any other way would be too expensive.
The regulator’s budget and the way it is funded should not be the factor that determines the regulatory system. Laws governing financial advisers should be based on principles that improve competition, economic growth and consumer outcomes, not those that suit the daily workload and KPIs of bureaucrats.
A system of widespread self-licensing – where advisers are individually visible to ASIC and beholden to a best interest duty but can still access scale through business partnerships and outsourcing (even with product providers if they choose) – will obviously not occur overnight. But if it results in ASIC implementing measures to help people start their own licences and ween themselves off the pernicious influence of the insto licensees, then it’s worth a try.
Finally, a ‘user-pays’ system ties the fate of ASIC to those it regulates in a much more tangible way. The regulator would suddenly have a stake in the industry’s success and growth, rather than the ambivalent – if not downright hostile – stance towards business it has displayed in the past. In some ways it would become ‘of the industry’, opening the door to greater mutual respect and understanding. This system would also make ASIC accountable to the industry that funds it, rather than solely to its masters in Canberra.
For the bad apples there would be a direct financial incentive to ensure compliance, which may assist in either causing them to leave the industry or foot more of the ASIC bill. This in turn could help with the reputational damage of recent years. I’m not saying there are no concerns with an industry-funded regulator. First and foremost, I understand that margins are tight and that any additional costs – on top of the already cumbersome burden of FOFA – would be unwelcome. In addition, we would need to ensure ASIC did not become a puppet of those that provide more funds than others (i.e. the banks as opposed to IFAs), since presumably the former’s levy would be higher.
But what we know for sure is that the taxpayer-funded status quo hasn’t worked in anyone’s interests. Some things are worth paying for.
Aleks Vickovich is contributing editor at ifa based in Washington, DC.
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