Naming of parts: planner versus adviser

“Today we have naming of parts,” begins a poem by Henry Reed. “Yesterday, 
we had daily cleaning. And tomorrow morning, we shall have what to do after firing. But today, 
today we have naming of parts.”

For financial advice in Australia, Schedule 2, which potentially amends Part 7.6 of the Corporations Act, is this naming of parts and last week’s release of a Parliamentary Joint Committee (PJC) report of recommendations an insight into the inner workings.

While government’s proposed restriction of how the terms financial planner and financial adviser are used has generally been welcomed by the industry, the debate has revealed some underlying divisions between the major players.

Certainly some precedents for enshrining the terms exist under the Corporations Act with stockbroker, futures broker and insurance broker all restricted in relation to terminology.

Accountant is a high-profile exception, a point seized on by the opposition when indicating its lack of enthusiasm for enshrinement.

The Financial Planning Association (FPA) also notes that Malaysia and Quebec in Canada have enshrined the term financial planner in law and that New Zealand has enacted legislation around financial advisers.

The spirit of FoFA

But, in the spirit of the Future of Financial Advice (FoFA) reforms, should the legislation go further and clearly differentiate between those involved in holistic financial advice and product advisers?

Indeed, the equivalence of the terms financial planner and financial adviser was fiercely debated before the PJC.

Chief executive of the AFA, Brad Fox, stated that the terms financial planner and financial adviser were “equivalent and interchangeable”, while the Australian Institute of Superannuation Trustees pointed out that, in terms of the provision of personal financial advice, the terms were treated the same under current law.

Mark Rantall, chief executive of the FPA, accepted that the terms were used interchangeably throughout the industry, but pointed out that the FPA had a different perspective.

“We believe financial planners are more involved in a holistic approach to financial advice. We think financial advisers are more product advisers,” he told the committee.

A few submitters had concerns about confusion the legislation may cause, and specifically about the inclusion of the term financial adviser in the legislation.

Accountants view

CPA Australia and the Institute of Chartered Accountants Australia (ICAA) conceded that restrictions on the use of the term financial planner might be beneficial but do not support the restrictions proposed for the term financial adviser.

“We do not support restricting the use of the term financial adviser and any other word or expression that is of like import. We believe this is unnecessary and overly restrictive. In addition, it would add complexity to consumers’ understanding,” it said in a joint submission.

“The term financial adviser is recognised and used in broader terms by professionals other than those licensed to provide financial product advice to retail clients. This includes professional accountants and financial institutions such as investment banks that provide financial advice both in Australia and internationally. It is also widely used by other professional advisers who provide financial product advice to wholesale clients.”

Furthermore, CPA Australia and the ICAA warned that the legislation could cause confusion if persons authorised to give personal advice on a limited range of financial products were still allowed to use the restricted terms.

“Allowing individuals with a limited scope of advice to call themselves a financial planner or financial adviser would not be in the public interest. These terms should apply to individuals who provide comprehensive financial advice. This must be addressed if the regulation is going to achieve its intended policy objectives of improving consumer trust and confidence.”

Experts can coexist

However, Fox disagreed with the concerns that restricting the term financial adviser would be detrimental.

“If there are specialists in a particular area, they still cannot provide personal financial advice unless they are authorised. If they are authorised, then they would be welcome to use one of the approved terms and they would be welcome to use other descriptors of their role,” he said.

“A financial adviser and an international investment expert can coexist, but the point that we would be looking for is for a consumer to understand, if they are seeing someone that has the term financial adviser or financial planner, that that is someone licensed to provide them with personal financial advice.”

This disagreement within the industry on whether the terms can be used interchangeably will now need to be considered by a government which, having given the industry a good cleaning, will not want to trip up on the naming of parts.