My rant this week is about ineffective regulation. In most cases I favour letting the market work. Although this can be messy sometimes - capitalism has stood the test of time as an effective economic system. I understand that some regulation is necessary - like road rules for example.
It is counterproductive regulation that really annoys us. Through the advice provided in our newsletter, under financial services law we are said to be giving general advice on financial products (instruments such as grain futures, swaps and foreign exchange contracts) to retail clients. Because of this we are compelled to hold an Australian Financial Services License (AFSL).
Through our newsletter disclaimer, we warn our readers that the advice provided has been prepared without considering your individual financial position – in the disclaimer we compel readers to seek further advice before acting on our recommendations. We can’t do much more than this as we have in excess of 2,000 subscribers Australia-wide.
For the right to be able to write our newsletter, it costs $30,000-40,000 annually to comply with our AFSL - a good chunk of our annual profit. Under our license conditions we are not allowed to hold client monies or act on behalf of clients and do not receive any commissions from third parties that may affect the advice we provide.
Most of ASIC’s compliance regime is a form filling exercise. And the Financial services legislation has spawned a whole industry of form fillers and box tickers – which charge around $250/hour to help you understand ASIC’s labyrinth of regulation. Submit something to ASIC without the T’s crossed or I’s dotted and you are in trouble, but give shonky advice because someone is paying you a kick-back to make favourable recommendations, and…...
So imagine my dismay last year when I was told that ASIC was not considering any new license applications (for those providing advice on financial products such as derivatives) due to the Global Financial Crisis (GFC). The GFC exposed ASIC’s compliance regime as hopelessly ineffective - through its complaints process it was made aware of potential fraud and/or gross incompetence and they chose to ignore it. But worse still it was essentially using this same flawed regime to prevent new entrants. Go figure.
If we were to provide poor advice, then people would simply stop paying money to subscribe to our newsletter – this is what motivates us to ensure that the advice we provide is prepared to the best of our ability. All ASIC does for our business is deprive us of some profit that we could look at re-investing to provide an even better service. That’s what you call counterproductive regulation.
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