Key points |
Provision of advice: Importance of consumer education and managing expectations. |
Reducing the regulatory burden: Problems in the industry will undoubtedly bring calls for yet more regulation; I remain steadfastly opposed to over-regulation. |
FSR refinements: Consultation on issues raised in last year’s refinements process; want to simplify and improve other aspects of corporate and financial services regulation. |
28 MARCH 2006
Good afternoon, and thank you for the opportunity to talk with you today.
Firstly, I would like to acknowledge the invaluable work of the Association of Independently Owned Financial Planners.
By aiming to provide your clients with sound, professional — and above all, objective — financial planning advice, you are helping many Australians to secure their financial future.
Those same Australians are increasingly wanting professional, objective advice — not just product sales advice. The financial advice industry is adjusting to this new demand.
The recent reforms to financial services regulation also recognised this trend. The law accommodates and encourages the increasing professionalisation of financial advisers.
Importantly, the financial advice industry itself, through bodies like your Association, plays an important role raising standards across the profession.
We currently rely on disclosure as a tool for helping people understand their investment decisions.
The disclosure regime helps provide people with the information they need to make decisions. This is what we mean when we talk about consumers being given full and adequate disclosure.
But, as in many other areas of modern life, investors often suffer from information overload. The result — they’re either confused or miss opportunities which may become available in the market.
There will always be those who take a paternalistic approach to marketplace confusion and say that the Government should regulate every product to within an inch of its life.
But this approach, I believe, will always lead up a blind alley.
I strongly support consumers’ freedom to choose.
In addition, I firmly believe in the importance of allowing the financial services industry to serve consumers which meet the needs of the time.
In my view, increased understanding through more education is the way ahead. This is not an easy, quick fix answer. On the contrary, it will take time and long term effort, by all stakeholders.
The Australian Government has already made a substantial commitment to consumer education by establishing the Financial Literacy Foundation.
The Foundation is tackling the issue at the grassroots by giving all Australian schoolchildren access to financial literacy education in their compulsory years at school.
We also need to look at how we can improve investors’ understanding of the more sophisticated financial decisions they face.
Providing accessible and impartial information about the range of financial products available and what they do is important. Educating people about the concept of risk and return is also critical.
If your clients come to you with at least a basic idea about what financial products and services can do for them, this will ensure that they are better informed, their expectations are more likely to be met and will also, of course, make your work a lot easier.
Education is a challenge for us all. I would value the help of your Association in thinking about how we can tackle this task in a practical way.
Reducing the regulatory burden
I would now like to turn to the regulation debate…
Past problems in the industry will undoubtedly bring future calls for yet more regulation. You can be assured that I remain steadfastly opposed to over, or un-necessary regulation.
Or worse, regulation which is developed and implemented hastily, without proper consultation with the business sector and broader public. Or without due consideration of the flow-on effects to other legislation.
The point I make here is that I want to ensure we have appropriate regulation.
Reducing the regulatory burden
Those of you who have spoken with me, or heard me speak at other venues, will know that reducing the regulatory burden, and improving regulatory efficiency, are major preoccupations of mine.
As a former businessman, I share the experience of many of you of managing a business subject to an extensive array of regulation.
A complex regulatory system — whether or not it achieves its goals — will only hinder business innovation and stifle productivity growth.
But at the same time, we don’t want to let our desire for simplicity overshadow good-old-fashion commonsense.
Australia’s regulatory system is highly regarded internationally, and has the broad support of both the business and wider communities.
Clearly, we need to strike the right balance between the government needing to get on with the job of providing a fair regulatory environment, and the concerns of the business community that there’s too much regulatory interference.
Similarly, we also need to strike the right balance between reducing the regulatory burden and maintaining important consumer protections.
FSR refinements
You may be familiar with the refinements I made last year to financial services regulation — otherwise known as FSR.
I think the FSR refinements project is a good example of how to tackle complex regulation in a practical way that benefits both consumers and business.
After my appointment to the Treasury portfolio, one of my first initiatives was to review the operation of the Financial Services Reform Act.
The 2001 FSR reforms were a sea change that replaced ramshackle legislative arrangements with a coherent regulatory framework.
This law was also designed to meet contemporary community expectations about the standard of financial services.
Australians expect and accept responsibility for managing their own money. But they also expect rules that allow them to participate in the market with confidence.
At the time, the reforms represented a radical overhaul. We needed to do that to safeguard the growth of individual wealth resulting from the Australia’s extraordinary economic success over the past decade.
Both the community and the financial services sector welcomed the reforms and the way they raised the bar for industry.
In fact, when the regime came into effect, Gail Kelly, Chief Executive of the St George Bank, said “Standards of professionalism and competence have been improved.”
That strong level of support has continued to this day.
However, in light of stakeholders’ day-to-day experience with the legislation, it became very clear that some aspects of FSR would benefit from refinement to improve its practical operation.
As a result, in May last year, I released a paper setting out a series of refinements.
The work on refinements clearly distinguished between maintaining the framework to meet broad policy objectives, and the need to address practical operational issues.
My two key objectives in delivering the FSR refinements, which were implemented last December, were firstly, to reduce the compliance burden on industry. And secondly, to clarify the intent of the legislation.
Many of the FSR refinements were designed to reduce excessive or inappropriate disclosure. This has helped to lower costs for businesses, helping them to provide information to consumers that is more relevant and useful for decision making.
An example of particular interest to financial planners is the reduction in the requirements for statements of advice.
I’m on the record as saying that I’m a strong believer in partnerships. To this end, I encouraged close ongoing consultation between industry and those preparing the refinements.
This close partnership raised further matters for consideration.
I have considered all of these additional matters that were raised by the business community during the refinements process.
It is clear to me that further work needs to be done to simplify corporate and financial services regulation.
In particular, improvement is needed to the extent that these practical problems interfere with the ability of financial service providers to deliver accessible and affordable financial advice for consumers.
An example of this is the boundaries of general and personal advice. Some industry participants have raised concerns that the definitional scope of general and personal advice limits the amount and quality of advice they can provide.
While I’m still considering this issue, I would encourage your members to engage in discussions with the Government on what can be done to further improve the advice being provided.
Or indeed, how we could facilitate a greater willingness on the part of providers to offer advice, particularly more general advice about managing investments, rather than particular product sales advice.
Last year’s FSR refinements went some way towards reducing the compliance burden on businesses. And in doing so, made financial advice more accessible and affordable for investors.
Way ahead
As the next step towards simplifying corporate and financial services regulation, we need to consult in the near future on a range of issues.
I will be seeking comments on additional refinements to financial services regulation. Some of these additional changes were raised during last year’s refinements process.
But I intend going further than just considering financial services regulation.
I believe the time is right to explore ways in which we can simplify and improve other aspects of corporate and financial services regulation, for example: company reporting obligations and corporate governance just to mention a few.
I intend to use the information collected during the consultative process to determine what refinements we can make to corporate and financial services regulation in the short term. And also to consider issues that could be further consulted on and refined in the medium term.
I would like to assure you of my commitment to a partnership approach to further improve regulation for which I am responsible.
This means that, at every step of the way, I will consult with the business community to ensure that the changes we make do what they are intended to do.
Conclusion
In closing, I would like to add that the reforms I have spoken about today are just one part of my broader vision for this industry.
I place great emphasis on an effective and efficient regulatory framework.
The strength and viability of the regulatory framework and, in particular the financial market itself, relies very heavily on consumer education.
My broader vision is a corporate and financial services industry that strikes the balance between properly constructed regulation, and the need to facilitate an open, safe and competitive market.
Some may consider this a big task, maybe even an impossible task, however I want to stress to you that I am committed to achieving this outcome.
It requires an open dialogue and considered effort from all stakeholders.
Ultimately, achieving this vision will yield tangible benefits - Australians will have greater capacity to save for their retirement and plan for their financial future – a most worthy pursuit.
Thank you, and I hope you have a productive and enjoyable time at the conference.