Management

Lecture 10 – Providing Financial Advice

Regulation

• Broad definition: Gvmt intervention in firm decisions/market outcomes

Narrow definition: Focus on administrative regulation, “economic regulation”, health/safety/risk, environmental

• Types of regulation: economic regulation, environmental/health/safety regulation

• Economic rationale for regulatory interventions,

• market failure
• Natural monopoly (oligopoly)
• incomplete or missing markets
• information failures, transaction costs, bounded rationality

A strong financial planning industry is important to all sectors of the economy

Major stakeholders in the Oz economy

• Government

• Maximise tax revenue
• Minimise outgoings
• Provides services as expected by constituents
• Maintain individual, business and foreign confidence
• Stay in power

• Financial markets

• Maintain confidence of all users
• Provide efficient marketplaces
• Gain market share
• Economies of scale
• Gain world recognition and support

• Business

• Maintain or increase profitability through cost control
• Increase market share
• Increase product lines
• Discriminatory pricing
• Build a sustainable business

• Individuals/families

• Earn sufficient money to meet current expenses
• Gain security of residence
• Meet goals for children
• Ensure a secure retirement

Potential for conflicts of interest

Current regulatory and industry issues

Many of these issues have been flagged by past reviews of the financial systems but have never been fixed

• Transparency of disclosure of all fees and costs and the impact of such practices as volume discounts from platform providers
• Management of conflicts of interest, fund managers, licensees and individual advisors
• Insider trading
• The impact that a commission-based system has on the provision of advice
• Appropriate education and training for financial advisors
• The ability of the regulators to proactively monitor the industry and enforce existing laws and regulations
• The effectiveness of the complaints resolution process
• Advice versus product sales

The ASIC Shadow Shopping Study

Advice needs to meet the requirement of ‘appropriate advice’ under s945A of the Corporations Act