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Advice bodies warn against consequences of new powers

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The Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) are warning that the use of the corporate regulator’s new product intervention powers may lead to significantly higher costs for consumers.

While the FPA supports the powers, manufacturers may try to recoup potential losses from an intervention by increasing fees or reducing services, it says in a submission to the Australian Securities and Investments Commission (ASIC).

“The problem will be exacerbated by the potential for the intervention power to affect the management of liquidity by product providers. The result is that consumers end up paying for the protection, which may not be the best use of their resources.”

The AFA says the cost of the legislation would exceed the benefits for low-risk products and would need to be passed on to consumers in the medium to long term.

The laws would be more effective if they were focused on high-risk products, it says.

The record-keeping obligations will have a particularly big impact on those classified as distributors, including advisers.

ASIC has proposed that product issuers will decide what information needs to be recorded and how it will be provided. This will cause a great deal of uncertainty for distributors, the AFA says.

“The cost increase from this legislation comes on top of a number of other recent regulatory driven increases which will impact upon the cost of providing financial advice to Australian consumers”.

Many of the examples of failed products used by ASIC to prove the necessity of the product powers are from the global financial crisis, and “it is not apparent” the new powers would have been able to stop these failures from occurring.