The Financial Planning Association has recommended a fairly radical change to the current licensing regime, in which individual planners – rather than, or in addition to, corporations – would need to qualify for a licence to give financial product-related advice.
In response to the criticism leveled at the wealth management and advice industry at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the FPA has suggested individual licensing as part of a dual system of licensing that would put the onus for professional standards squarely on the end adviser, the FPA’s recent submission highlights.
“The current model, whereby the corporate entity, not the individual, is licensed, strips out the ability for the financial planner to be registered in their own right,” FPA chief executive Dante De Gori told Professional Planner.
A regime along the lines of what the FPA is recommending would mean the individual holds the licence and could be stripped of it if not meeting professional standards.
The benefits of an individual licensing system, with individual accountability, are that the professional obligation switches firmly to the individual, and the pressure currently exerted from the licensee onto the adviser is reversed, De Gori highlights.
“What we have now is a lack of portability, whereby if you want to go work somewhere else, you are reliant on, and need to be authorised by, another licensee…Whereas if you think about lawyers, tax agents and other professionals, once you’re registered as an individual, that’s your registration to obtain and take with you no matter who you are employed by,” De Gori explained.
There is still much be worked out before an individual licensing proposal becomes a reality, De Gori acknowledged. Going straight into such a regime could mean unwinding the Corporations Act, he said.
“You couldn’t just put all the obligations of running a licence that are currently with corporations onto the individual; there would need to be a dual licensing system, one for the corporation and one for the individual,” De Gori explained.
For the individual licensing recommendation to be taken up, there would also need to be further work done on understanding the impact of similar regimes in other industries and countries, De Gori suggested.
The FPA’s submission stated that the individual licensing regime could sit within the existing authorised representative framework and require individuals to apply for a “practising certificate” issued by an approved professional association. Alternatively, the individual certification could be issued and administered by the Australian Securities and Investments Commission or by a separate statutory or independent regulatory body, the submission outlines.
While ASIC may not yet have seriously considered regulating an individual licensee framework, such an approach is clearly on the minds of senior people within the securities regulator, transcripts from the royal commission reveal.
During a cross-examination in April by Rowena Orr, ASIC senior executive Louise Macaulay said her personal view was that it made sense to consider requiring individual planners to be licensed.
An individual licensing regime would eliminate the “intermediary, the licensee” and put a direct obligation on the individual, she said.
“[The individual] would need to meet the professional standard,” Macaulay stated during the cross-examination. “If they were unable to do that, then they would be out of the industry. So yes, it would be a more direct form of regulation.”
She added that, to her knowledge, ASIC hadn’t yet put any work into individual licensing. She described contemplating a move in that direction as a “large policy question”.
Individual licensing is at the top of the agenda of the industry’s peak representative body, the FPA’s royal commission submission and De Gori’s subsequent comments, indicate.
“What we have now is a framework where the professional standards and conduct are dictated by corporations at the licensee level,” De Gori said. “Moving to an individual licensee approach would put responsibility for standards and contact on the individual.”
