Professional Planner’s suggestion that financial planning would be better served as a profession if planners were accredited as individuals, rather than as authorised representatives of licensees, is starting to catch on.
This week, the chief executive of Connect Financial Services Brokers, Paul Tynan, suggested that institutional licensees are a major stumbling block to reforming the structure of the industry. Tynan’s comments were picked up and reported in other publications.
Professional Planner readers will be across this issue already – it was the subject of the magazine’s cover story back in May, and it’s featured in other articles since then, including an excellent discussion paper authored by a former head of Godfrey Pembroke, Tom Reddacliff.
It’s good to see others starting to think through the issues and help develop the idea but in Professional Planner’s experience, both before the May article and since, institutions are not necessarily the problem they’re presumed to be. If institutions were utterly intractable on the idea, it would not go anywhere quickly, but they’re not. That’s why we believed the time was right to raise the issue.
In fact, in a range of conversations on the issue, they’ve shown themselves to be generally willing to consider the idea, and they acknowledge the benefits that might arise if they were to be removed from responsibility for licensing individual advisers.
What Professional Planner and Reddacliff have canvassed is a way of granting authority to individuals to practise as financial planners that cuts out any entity that has a commercial interest in licensing those financial planners.
An independent body – it could easily be the new Financial Adviser Standards and Ethics Authority (FASEA) but would not have to be – would be charged with issuing authority to individuals who could prove they meet prescribed education, professional and ethical standards, and who are members of a properly constituted professional association and its disciplinary processes.
It would mean an individual’s authority to practise as a financial planner would not be licensee-dependent. No institution could choose to authorise an individual or revoke that authorisation; but a financial planner could have their authority revoked by the body, independently, for breaches of ethical or professional standards.
New way for institutions to relate to planners
Existing licensee businesses would transition to a new role supporting these professionals – perhaps know as ‘registered advice groups’.
It would change the way institutions – in fact, all product manufacturers – relate to financial planners. Reddacliff’s thinking has led him to the idea that an entity could be accredited as a registered advice group (in place of the current licensee) or as a product provider, but not as both. He argues that “to be a registered advice group, you can’t subsidise the [advice] fees or provide soft-dollar incentives”.
“Various tests could be introduced to ensure these groups are purely a conduit for services supporting the adviser and firm in discharging their professional duties and running a healthy business,” he says.
Then, financial planning would start to look more like a profession than it does at the moment under the existing licensee-authorised representative relationship. Yes, there are issues of control that licensees would need to come to terms with, as Tynan suggests, but there’s also a growing understanding that, ultimately, advice is a service, and is headed towards becoming a profession anyway.
“As the advice sector moves to a ‘true profession’ the only way forward and [only] test for the validity of non-institutional influence is through the eyes of the public. It is inevitable that individual adviser licensing will be the preferred model,” Tynan says.
The view of advisers as product distributors might have served institutions well in the past, as far as it went, but it won’t fly in the future. And the reputational damage arising from poor advice has been rammed home in no uncertain terms at one point or another in the past few years.
No insurmountable issues
That’s not to say Tynan hasn’t raised some good points, and issues such as buyer of last resort (BOLR) arrangements remain a sticking point. Reddacliff eloquently addresses a range of other practical issues that need to be considered. But none should be considered insurmountable for an industry that has repeatedly shown itself to be so massively creative and constructive when it’s in its interests to be so.
Financial planners are already voting with their feet, and various analyses of adviser movements, based on the ASIC financial adviser register, claim to show that advisers are moving away from institutional dealer groups. Where they’re going is less easy to say definitively, but some are taking the own-AFSL route.
Ray Miles, who in his time has founded the Associated Planners, Genesys and Fortnum dealer groups, reckons advisers have four main options: get their own AFSL; join, or create, an adviser-owned AFSL; join an AFSL that already facilitates conflict-free advice; or stay with an institution and become a salaried adviser.
Miles and a former general manager of the ANZ-owned Financial Services Partners, Geoff Rimmer, say advisers must move into what they describe as “the green zone” of advice, where there are no conflicts with product manufacturers or other service providers.
It’s an approach to advice that has long been championed by the founder and managing director of Certainty Advice Group, Jim Stackpool, as well as by members of the Independent Financial Advisers Association of Australia (IFAAA) (some of whom are also part of Stackpool’s group), among others.
Miles and Rimmer say this is the biggest decision any financial planner will have to make in the next three to five years.
New professional, ethical and education requirements reshape the landscape and change what is demanded of financial planners. If financial planning is to become a trusted and respected profession, then it will be because all financial planners take on and actively support personal and professional responsibilities.
A licensing structure based on early-2000s thinking just won’t do any more.
