The debate is well and truly off and running over the best way to license financial planners as professionals, rather than as distributors for product manufacturers.
A cover story in the current edition of Professional Planner, and a discussion paper written by a former head of the NAB-owned Godfrey Pembroke group, Tom Reddacliff,
focus on why the current licensing structure needs to be reviewed, at the very least, and probably fundamentally overhauled, as financial planning progresses inexorably towards becoming a profession.
In pulling together the cover story, Professional Planner and Reddacliff were supported by the work of Angelique McInnes, a lecturer in the school of business and law at the University of Central Queensland. McInnes’s current PhD work examines the legitimacy (or, as it seems to be, the illegitimacy) of the licensing structure.
The current Australian financial services (AFSL) and authorised representative (AR) structure is simply wrong for a profession, and there’s a strong argument to suggest individual licensing is a better way to go.
Another Professional Planner article reveals a full listing of AFSLs and how many ARs each of them has. It shows the concentration of advice networks in the hands of institutions. The time for a serious discussion of individual licensing clearly has come.
After meeting Reddacliff and Professional Planner in Sydney last month, McInnes produced a rough schematic of how an individual licensing regime could work. About the best that can be said about it at this early stage is that it’s marginally less complex than the current AFSL-AR structure. But addressing the connections and entanglements among different players in the market is a basic step towards defining a better, simpler and more professional structure.
The reasons the AFSL-AR structure is wrong are too numerous to go into here, but almost everyone operating within the industry knows what they are. And anyone who truly does not already know is probably part of the reason the structure needs to be changed.
We thought the issue might be timely while the industry is digesting new education, professional and ethical standards, but the reaction has nevertheless been unexpected. Individual financial planners who have contacted Professional Planner directly are overwhelmingly supportive but there is an understandable reluctance to go public just yet. Behind the scenes, the discussion has been constructive, if somewhat guarded. Again, licensees are understandably reluctant to go public just yet with their thoughts – which generally are supportive.
If you have views on the issue, send them through. They will be treated in confidence.
There are a number of issues and implications that arise from individual licensing – including, for example, professional indemnity (PI) insurance, or buyer-of-last-resort (BOLR) arrangements – but nothing insurmountable.
This is, after all, an industry with a proud history and seemingly inexhaustible capacity for generating creative solutions to complex issues. For example, here’s some out-of-the-box thinking on universal approved product lists (APLs), written by the managing director of Adviser Ratings, Angus Woods. (Adviser Ratings was pivotal in producing the AFSL lists referred to above.)
Licensee role is in flux
As the Future of Financial Advice (FoFA) changes continue to flow through the industry, and as new education, professional and ethical standards come into play, along with the bodies and structures to implement them, it looks like the licensee entity is being sidelined anyway.
Advice is being separated from product, slowly but surely, and the Australian Securities and Investments Commission is monitoring and policing this and other aspects of FoFA.
The Financial Adviser Standards and Ethics Authority (FASEA) will develop new standards for entry-level education requirements that come into place from 2019 for new planners and from 2024 for everyone else. FASEA will also develop an exam that all financial planners – new and existing, with no exceptions – will have to pass or be booted out.
Licensees won’t be responsible for developing any of these education standards, beyond the usual consultation process.
FASEA will also develop an industry-wide code of ethics, with compliance monitored by approved monitoring bodies. The professional standards legislation states: “A monitoring body may be any entity, apart from a licensee or an associate of a licensee.”
So if FASEA sets education standards and the code of ethics, and if non-licensee entities monitor breaches of the standards and ethics compliance, and ASIC is in there, too, what exactly is there left for licensees to do?
Quite a lot, as it turns out. It’s just that it will have little to do with authorising financial planners, admitting them to the profession, expelling them if they stuff up, or disciplining them for breaches of ethical or professional standards. The role of the licensee must and will change.
We’ll gain an insight into what makes licensees more likely to navigate the transition successfully when we see the results of CoreData’s latest licensee research in June.
Meanwhile, the winners of the Licensee of the Year awards – institutionally branded, institutionally affiliated and independently owned, plus the overall winner – will be announced at the Professional Planner Licensee Summit on June 5. (There are limited places left for licensee heads and senior executives and managers to attend.)
The CoreData analysis shows how licensees offer value and support to advisers well beyond merely holding an AFSL and authorising the advisers to give advice. For licensees, that’s clearly the way of the future.
