The Act is to be reviewed next year but adviser Murray Weatherston said the industry deserved more clarity about what its objective was.

“Before you decide on regulation you need to decide what the problem is, then what are the possible solutions to that problem. Only if Government intervention is the way to do it do you go for Government intervention… what actually is the problem that we’re trying to fix here?”

He said, given the paucity of complaints that went to external disputes resolution schemes about investment advice, and the few that had gone to the FADC, there did not seem to be a large problem that needed to be tackled.

Smaller changes could have had better consequences for consumers, he said, such as requiring independent custodians to avoid future David Ross-style situations.

“When I read MBIE’s paper [the baseline review of advisers] the thing that sticks in my mind most is the idea that advisers will bridge the information asymmetry between fund managers putting a product out and investors buying it.”

If that was the problem, Weatherston said, the solution should be to improve the financial literacy of consumers, not subject advisers to heavy regulation. “If I had to guess I would say regulation has added $25 million of cost to the financial advice industry every year. There’s only one group of people that will pay that cost and that’s the people always forgotten, the people these reforms are supposed to help.”

Raising financial literacy standards was not advisers’ role, he said.  “I could say I’ll devote half my time to making the population more financially literate but the only trouble is I can’t capitalise on the benefit of that. Everyone who didn’t do it would be competing for the people who then go out and buy because they’re more literate.”

Claire Matthews, of Massey University, agreed the FAA had been a kneejerk reaction to a small number of cases where people who dealt with advisers had lost money in finance company collapses. “It was an overreaction. On that basis we shouldn’t have cars on the road because some people have accidents and get killed. There were issues but they were a small minority. It was a ‘sledgehammer to crack a walnut’ approach.”

Weatherston said he did not expect any concessions in the FAA review. “They will not back down. They will always want to be pressing ahead, doing more things.”