Hayne adviser calls for ‘root and branch’ red tape review

Addressing the FPA’s virtual congress on Thursday, UNSW Professor Pamela Hanrahan, who advised commissioner Kenneth Hayne on the dynamics of the financial services industry, said with the sector having evolved past conflicted remuneration and regtech solutions coming to the fore, many of the current regulations governing advice may no longer be necessary.

“The basic architecture of the current system was devised to solve problems in the relationship between adviser and client in the 1990s,” Ms Hanrahan said.

“If you think about the sorts of problems people need help with now or the digital architecture that can support the way we practice, we are coming to the end of that regime. 

“So it’s difficult to see how we can get out of the regrettable level of regulation we have at the moment without a root and branch re-assessment of the architecture of that regulation.”

Ms Hanrahan said a key starting point was freeing up regulatory obligations around simple scaled advice, which carried less risks for consumers.

“Personal advice has this fiduciary character, that means every time advisers make a judgement they are required to do so to advance the client's interest and not their own. We need to make sure advice has that fiduciary character, but things that don’t have that intensity should be subject to a lighter form of regulation,” she said.

“I think the scope of full regulation can be trimmed back – it’s time to regulate a narrower range of activities more intensely and open up the space for qualified people to be able to provide assistance to clients on a more limited basis than they are able to do at the moment.”

By opening up scaled advice as a lower-cost option, the industry would be able to better serve middle Australia and avoid financial planning becoming the preserve of the rich, Ms Hanrahan said.

“For high-net-worth individuals who are prepared to pay the unit cost of providing full advice, we are at a point where there has been a significant improvement in the quality of service that those people are receiving,” she said. 

“The difficulty is around people who don’t want to pay for full advice being able to access answers to questions they are facing because they are going through some life change and they need a bit of guidance. We should be regulating true personal advice where people can afford to pay for it, but it’s that middle piece we are still struggling with.”