How To Judge The New Financial Services Laws
Sun Herald
Sunday March 21, 2004
THE aim of the new financial services laws, with tougher new disclosure rules and uniform licensing requirements, is to make it easier for investors to understand products and advice.
Whether the laws deliver only time will tell, but they have already forced a lot of change across the financial planning and funds management industry primarily to compliance systems, training and disclosure documents with some estimates putting the implementation costs as high as $100 million.
Anecdotal evidence also suggests a number of financial planners particularly those from a life insurance background opted not to make the transition to the higher education standards required and either sold out of businesses, left the industry or, in some instances, moved into the less-regulated mortgage broking world.
One of the issues has been that statements of advice were overly complex and weighty documents some 80-90 pages and that investors would be swamped with information.
ASIC executive director of Financial Services Regulation Ian Johnston said it was typical that when there was a major new law, such as the Financial Services Reform Act (FSR), lawyers would err on the side of caution.
``Under the old prospectus regime the rule was that if a company was aware of information, it should disclose it," he said.
But under the FSR, it is a consumer-centric approach and Johnston said the basic question companies needed to ask was whether, ``it's something consumers need to know to make their decision and if not, then there is no need to disclose it".
Clearly the corporate compliance pendulum is set at the conservative end as we usher in this brave new world of licensing and disclosure. Hopefully, over time, accepted practice, with ASIC guidance, will streamline the documents so they are easy to understand and help those all this change is meant to benefit individual investors.
Ultimately, this new regime will be judged on two basic criteria: are consumers making better informed decisions on investments, and has the basic standard of advice consumers receive been raised?
© 2004 Sun Herald
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