Accessible financial advice for all agents is a necessary function of a healthy and sustainable economy. Lack of literacy in any one segment of the economy can have large-scale trickle-down effects. This can mean growing disparities in the distribution of income, unfair market share, and debilitating legal ramifications.
New ASIC Chairman Joe Longo has signalled a strong intent around improving financial literacy. This includes a proposed move in his focus towards making financial advice cheaper, and its legal requirements more coherent. As it stands, the industry is subject to rigorous compliance requirements and onerous legislation. As a consequence, this means that advisors carry the burden of risk and loss to investors when things go awry.
A deregulated market (by way of reform to current laws) could facilitate broader access to advice. To balance these efforts, the onus will be on investors to take responsibility for their own decisions. Minister for Superannuation, Financial Services and the Digital Economy - Senator Hume, has referred to the pattern of protecting investors, against their own errors, as basis for creating a ‘nanny state culture’. Investors who are continually protected from their own mistakes skew the market and are not "penalised" adequately. This can result in decisions that will negatively affect not only their personal portfolio, but the market in totality.
Freeing the industry from complex legal requirements, inefficient processes and concentration of knowledge in industry niches, provides an exciting new opportunity. An opportunity for people to move to more an equal footing, and build their financial literacy along the way. Currently, a great discrepancy exists in financial literacy across various socioeconomic groups, genders, and race. In adopting simplification, Longo aims to begin to equalise, then reverse this trend.
The Australian Law Reform Commission’s review of the sector may reveal Chapter 7 of the Corporations Act, which currently governs the provision of financial product advice, be repealed, and replaced.
New legislation intends to maintain the spirit and function of the policy, in a manner that is more accessible, user-friendly, and balances the consequences of investment decisions on the parties responsible. In turn, the industry will move towards the encouragement of more responsible, informed decisions.
A potential by-product of this change may be the reluctance of investors to take risks. Especially if their decisions are not successful. Finding a balance is a challenge for the financial industry, to protect "losing" investors to still have some recourse against an advisor in certain circumstances. This comes under the Government’s compensation scheme of last resort.
As ASIC moves its focus towards meeting ‘unmet advice needs’, investors should be prepared to take responsibility for their investment decisions and actions. This is a positive direction for economy and society as a whole, incentivising financial literacy as a powerful instrument that can be harnessed by investors themselves, rather than totally by the financial services industry.
It seems as though ASIC is encouraging financial literacy to be in everyone's DNA.
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