FSC wants ‘red tape razor gang’ to slash financial services regulation

The Financial Services Council (FSC) has published its Federal Election Policy Priorities ahead of the nation heading to the polls in the next few months, calling for the major parties to commit to forming a “red tape razor gang” that would be responsible for slashing inefficient regulation.

On the advice front, the immediate implementation of the Quality of Advice Review’s (QAR) recommendations and a “comprehensive review” of the operation of the Compensation Scheme of Last Resort (CSLR) headlining its proposals.

“The financial advice industry has dramatically reduced within the last decade from a peak of 28,000 financial advisers in 2018 to around 15,600 advisers more recently,” FSC chief executive Blake Briggs said.

“Without reform to encourage investment in advice businesses the sector will not have the capacity to provide valuable financial advice to the 2.5 million Australians who will retire over the next 10 years.”

In line with this, the FSC said implementing the QAR immediately could help cut through the regulatory red tape that “do not enhance the customer experience” and have led to the ballooning cost of advice.

“Noting the government’s announcement around the Delivering Better Financial Outcomes Tranche 2 reform package, both major parties should commit to finalising the implementation of the Quality of Advice Review to grow jobs in the financial advice sector and make it easier for Australians to access affordable financial advice,” it said.

“Reforms should also consider the role of digital advice solutions to enhance efficiency, lower cost, and complement the provision of person-to-person advice.”

Last week, the Financial Advice Association Australia (FAAA) released freedom of information (FOI) documents that show a timely impact analysis of the CSLR was likely to not have been undertaken.

“We are calling for the government to acknowledge the scale of the exposure the financial advice profession faces and to undertake an urgently needed review of the CSLR legislation, to ensure that the CSLR is fairly and sustainably funded,” FAAA CEO Sarah Abood said.

Similarly, the FSC has also pushed for a comprehensive review of the operation of the CSLR to “ensure efficiency and prevent unsustainable cost for industry”.

This would include:

• reviewing the administration costs of the CSLR;
• considering government contributions;
• considering appropriate capping of industry contributions that reduce cost uncertainty; and
  reviewing arrangements like solvency, liquidity, insurance, capital and risk management requirements which prevent firms from collapsing or failing to meet obligations like compensation payments if required.

“Consumers should also only be compensated for their actual losses, instead of compensating them for hypothetical foregone gains, which prevents the CSLR from being truly a scheme of last resort,” the FSC added, in line with its submission to the Dixon Advisory Senate inquiry.

Education, RITCs, and breach reporting

Beyond the QAR and CSLR, the election priorities document also argued that reforming the “unduly prohibitive” education requirements for financial advisers could boost new entrants to the profession.

“Most young people at university study a generalist degree such as commerce, business, or economics, but have competency in some topic areas that are relevant to financial advice,” the FSC said.

“The pathway to becoming a financial adviser should not be limited to people who have completed a financial planning degree and instead should be flexible enough to accommodate new entrants and career changers by having elements of their pre-existing degree courses recognised, while maintaining appropriate qualification levels to ensure consumer protection.”

This should be extended to the proposed new class of adviser, it added, with the development of “appropriate pathways” to becoming relevant provider over time.

“Reforming the education requirements could increase the future supply of advisers, which could lead to lower growth in costs in advice, which have increased by 58 per cent between 2018 to 2023,” it said.

The FSC has been pushing for a reversal on the decision to remove the Reduced Input Tax Credit (RITC) for advice fees collected by a super fund or IDPS provider since it was announced, and has kept it on the election agenda.

“The change means funds and platforms cannot continue the long-standing practice of passing the benefit on to consumers, leaving them up to 7.5 per cent worse off,” it said.

“Government should amend legislation to restore reduced input tax credits (RITCs) for superannuation funds and platforms on GST paid for financial advice. This would recognise funds and platforms as recipients of advice for GST purposes and clarify the availability of tax credits for GST on fees paid on behalf of consumers. This could be achieved as part the financial advice reform package or as part of a separate bill.”

The breach reporting regime is another area that is prime for reform, the FSC said, with the need to report minor or technical breaches even if they do not cause customer loss placing “increasing strain on ASIC and industry resources without commensurate investigatory intelligence for the regulator”.

In November last year, ASIC revealed that just 7 per cent of reports in the 2023-24 financial year related to financial advice.

“The FSC estimates that simplification of the breach reporting regime will save businesses $183 million in net compliance costs over 10 years, and 34,000 hours a year that could instead be deployed into resolving more consequential breaches faster,” the FSC said.

“Breaches which do not result in financial loss or damage to the consumer should be exempted from the breach reporting regime. Government should work with ASIC to improve the ASIC Portal.”

Slashing red tape

Beyond its financial advice recommendations, the FSC said its economic modelling shows that a growth-focused economic agenda would generate an additional $19 billion of gross domestic product (GDP) over the next decade and support a private sector-led economic recovery.

“The upcoming federal election is an opportunity to refocus on economic growth and allow the private sector to lead Australia out of its economic malaise,” Briggs said.

“As one of the largest contributors to the domestic economy, the financial services industry has an important role to play in achieving sustainable economic growth and higher living standards for Australians.

“The FSC has recommended policy proposals that would increase financial services exports by almost $2 billion a year and lift the sector’s productivity by $800 million a year through a combination of reducing regulatory costs and lowering fees and investing in new markets.

“Reforms to bolster the competitiveness and economic contribution of the financial services industry would contribute $19 billion to Australia’s GDP over the next decade.”