My former colleagues at the Commonwealth Treasury can generally be relied upon to defend the free market, but occasionally they fail to do so, as appears to be the case with new legislation relating to financial planners reported on by the Financial Review earlier today:
Financial planners have lambasted Treasury proposals that would force advisers to obtain tax and commercial law qualifications, arguing the rules would force many professionals out of the industry.
On Friday, Treasury released a discussion paper detailing the qualifications financial advisers will need to obtain as part of the proposed legislation to bring planners under the Tax Services Agent Act (TASA).
Treasury recommends that financial advisers be required to take courses in commercial and tax law, which it estimates would amount to between 200 and 260 hours of study. In addition, planners would need to have at least 18 months of experience and be a member of a professional organisation.
This seems like an unnecessary barrier to entry that may ultimately constrain competition in the sector and result in higher costs to people seeking financial advice. If Treasury officers are struggling to figure out logical arguments against silly ideas like this one, they should read Milton Friedman’s classic, elegant defence of the free market in either Capitalism and Freedom or Free to Choose. A good place to start would be Chapter IX of Capitalism and Freedom on Occupational Licensure, in which Professor Friedman observed:
…the great argument for the market is its tolerance of diversity; its ability to utilize a wide range of special knowledge and capacity. It renders special groups impotent to prevent experimentation and permits the customers and not the producers to decide what will serve the customers best.
Treasury should trust the market and not force people to obtain qualifications that may be unnecessary for them to do their jobs and meet the needs of their clients.
Queensland Economy Watch 
But didn’t Smith point out that markets only work within a moral or ethical framework? And so are they just hoping for socialization to improve the chances of suitable norms in an industry with notoriously high information asymmetries between service provider and client?
Yes, clearly ethics are important, and the idea of socialization leading to suitable norms is an interesting one. It seems a rather indirect way to achieve a policy objective to me, though. I’d prefer either increasing penalties for misleading conduct or regulating to require greater transparency.
I think the GFC and the number of people swindled/poorly advised in recent years is more than enough evidence to suggest Treasury is on the money with this one. The asymmetry in information in this industry is a serious concern. Definitely more regulation rather than less is required.
Good point about information asymmetry. I think regulation aimed at improving transparency/reducing information asymmetry (or stronger penalties for misleading conduct) may be justified, but it’s unclear why a higher level of qualifications is now required. If this is a reaction to Storm Financial, etc the response is a bit late.