Financial planning defined in “national interest”

The Financial Planning Association (FPA) has welcomed the government’s release of draft legislation for enshrining the terms financial planner and financial adviser in Australian law.

The draft legislation, released today (November 28), follows extensive consultation with the financial planning industry.

Minister for Financial Services and Superannuation, Bill Shorten, also spruiked the government’s commitment to replacing the accountant’s exemption with a new form of limited licence as a further consumer protection provision.

“The gift of longer life means it’s in the national interest to ensure consumers have confidence in financial planners and advisers. This reform also improves the growth prospects for the estimated 18,000 advisers and planners currently practicing,” he said.

“The Gillard government recognises the need for quality financial advice, and for Australian consumers to have trust and confidence in their financial planners and advisers is critical.

“This measure will ensure that only persons authorised to give personal financial advice to retail clients can hold themselves out to be a ‘financial adviser’ and ‘financial planner’.”

The announcement follows the minister’s commitment in March this year to introduce legislation into Parliament before July 1, 2013 that would enshrine the terms in law.

Truth in labelling

The FPA welcomed the news as another step on the pathway to professionalism for the financial planning industry having originally called on the government to restrict the term “financial planner” under law in April 2011.

Currently, under the Corporations Act 2001 there is no constraint on individuals calling themselves financial planners irrespective of their training, competence and even licensing.

“This is a fundamental public confidence issue. Only one in five Australians currently get financial advice and some of this is due to consumers not knowing who to trust,” said Mark Rantall (right), chief executive of the FPA.

“Consumers deserve the right to differentiate between a qualified, professional financial planner and anyone who happens to hang out a shingle calling themselves a financial planner. The FPA has long called for truth in labelling and this draft legislation from the government responds to those calls.

“While FPA members hold some of the highest educational and ethical standards in the industry, there are those in the industry who call themselves financial planners but are seemingly unaware of the specific competency, training, licence, professional standing and services provided. This legislation should put a stop to those bad apples who have misled the Australian public and tarnished the profession by wrongly using this title.”

Calling the announcement “a great win for consumers”, Rantall added that it would strengthen the benefits of the Future of Financial Advice reforms, in particular the introduction of best interest and the removal of conflicted remuneration.

The draft legislation states that only those fully licensed and authorised to provide personal financial advice can call themselves a financial planner/adviser.

“Membership of a professional body, like the FPA, provides additional safeguards to consumers in terms of the professional integrity and accountability of their financial planners,” said Rantall.

“Though this is a significant first step, the FPA will continue to advocate for membership of a professional body and/or an ASIC-approved code as the ultimate criteria for restricting the term financial planner/adviser”.

Win win 

Shorten said the changes to regulation would also benefit thousands of small businesses by creating a significant opportunity for up to 10,000 accountants and the estimated 18,000 financial advisers who may wish to grow and diversify their businesses.

“Collapses such as Trio highlight the need for investors to fully understand the alternatives before changing their existing superannuation arrangements. This new licence means licenced practitioners will advise on a wider range of alternatives, rather that limiting their advice to the establishment of a self-managed super fund,” he said.

“By giving financial services practitioners the opportunity to expand their businesses, consumers can expect greater competition in the market and therefore more competitive prices.”

“Today’s announcement is a win-win.”

As part of the government’s FoFA reforms, a new limited Australian Financial Services Licence (AFSL) was announced earlier this year. This includes:

• In addition to being able to advise on self-managed superannuation funds (SMSF) and superannuation generally, licence holders will be able to give “class of product advice” on basic deposit products, general and life insurance, securities, and simple managed investment schemes;
• Streamlined experience requirements for accountants who hold a practicing certificate issued by one of the professional accounting bodies (the Institute of Chartered Accountants in Australia, CPA Australia Ltd and the Institute of Public Accountants); and
• An exemption from the audit requirements for limited licence holders who do not handle client money and instead submit an annual compliance certificate.

“I am also still considering whether other professional qualifications could also form part of the streamlined arrangements, for example, practicing certificates issued by the SMSF Professionals’ Association of Australia,” Shorten said.

“In addition to feedback on the draft regulations, I invite submissions to address this issue.”

The draft regulations and draft explanatory statement can be found on the Treasury website.

Submissions on the draft regulations close on December 21, 2012.